My Take on Standard and Poor’s Downgrading of U.S. Debt Worthiness

Nations with comparable and higher percentages of debt relative to their Gross Domestic Product are still rated AAA. While high, note the U.S. is at the bottom of this list: Singapore, 102 Canada, 84 France, Germany, 78.8 Britain, 76.5 Austria, 70.4, Netherlands 64.6, US 58.9.

Then the report came that Standard and Poor’s made a two trillion dollar mistake in its math. While the firm spokesman said this didn’t matter, how significant an error of this size? It’s one-seventh of the current U.S. national debt. Think if your mortgage were reduced by 15% – your payment, depending on the size of your mortgage – would be several hundred and for some thousands of dollars less.

It’s interesting to note that this same firm was a prime contributor to the collapse of the real estate bubble in 2008 because it had continually given AAA ratings for very risky mortgage backed securities from Wall Street and the big banks. Robert Reich described S&P as major (and thoroughly irresponsible) credit-rating agency that’s neither standard nor poor.” My own view is that the firm as set a new standard for poor performance.

When the stock market plunged after S&P’s announcement, where did people invest their money? Money poured into U.S. notes and gold. While investing in the U.S. debt lowered the interest rate the federal government pays, investing in gold essentially takes money out of the economy. It can’t be loaned or invested in new job-producing technologies or enabling businesses to grow or even stay in business.

Standard and Poor’s is a subsidiary of McGraw Hill, a respected publishing company since 1884. S&P’s performance is a cloud on McGraw Hill’s reputation. Since the writing of this post, McGraw Hill has announced it will be splitting off S&P from its publishing business.

While companies that rate debt need to be independent, they also need to be responsible and if they can’t be, then we add more layers of regulation to an arguably already overregulated economy. For a lighter look at this issue, check out the editorial cartoon by Times Picayune Editorial Cartoonist Steve Kelley.

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