Standard and Poor on Riskiness of US Debt

[Hannah Bell]

by Richard D. Wolff

On April 18, Standard and Poor (S&P), one of three "rating companies" that control that industry, revised its outlook on the safety of long-term US debt from "stable" to "negative." There are only two reasonable reactions to this announcement, although the usual business and political leaders are promoting their usual spins.

We may dispense quickly with the latter since they are not worth the cyberspace they waste. Conservatives "point with alarm" -- a gesture they enjoy -- at US debt as if it proved (1) general profligacy in the forms of excessive social programs and out-of-control entitlements (Social Security, Medicaid, and Medicare), and (2) the "obvious" need to cut current budget deficits by cutting federal spending. These geniuses missed what S&P analyst Nikola Swann wrote or else they found it convenient to speak as if they had no clue about the realities of US debt. As Swann pointed out, from 2003-2008, the annual US government's budget deficit ranged from 2-5% of GDP, but it "ballooned to over 11% in 2009 and had yet to recover."

In plain English, fast rising US debt is a direct consequences of the current global economic crisis and the US government's decision to borrow the money it used to bail out the major banks, brokerage firms, AIG, GM, and so on. In plainer English, the conservatives who now dominate both parties are using S&P's negative outlook as a club to make the masses of people pay -- in reduced services and entitlements -- for the costs of borrowing to bail out major capitalists in crisis.

Now to the two reasonable reactions to the S&P outlook. The first is sheer incredulity. S&P is famous for having issued what Senator Carl Levin (Chair of the Senate Investigations Subcomittee) recently called "inflated credit ratings" prompted by "rampant conflicts of interest" in the US financial industry. Sen. Levin named this company a "key cause" of the economic crisis. That is polite-speak for having either lied about credit risks or else having shown monumentally poor judgment in assessing such risks. So we now should take seriously what this utterly compromised company says? What?

http://mrzine.monthlyreview.org/2011/wolff200411.html

[CanonRay]

1. I wouldn't believe they say.

Or any other rating company for that matter. They're all on Goldman Sachs payroll.