What’s really annoying here is how the ratings agencies’ unearned status enables them to serve up superficial, highly conventional political prognostication and call it credit analysis.
For example, the July 14 report argues that failure to cut a deal now, when the political system is “more focused” on debt reduction than it has been for “a decade” — possibly because the debt wasn’t so bad a decade, or even five years, ago? -- could mean that no deal would happen for several more years.
But that doesn’t necessarily follow. What if there’s a GOP sweep in 2012 and the Republicans actually succeed in imposing massive cuts? Or the Democrats win and impose a big tax hike on the rich? Or if there’s gridlock and the Bush tax cuts expire, yielding an instant revenue windfall?
And by the way, how meaningful is the AAA rating when France has one despite a debt-to-GDP ratio higher than that of the U.S., a decreasingly competitive economy, belligerent public-sector workers, liability for bailing out Greece, and a political system arguably even less capable of wrestling with long-term fiscal problems than that of the U.S.?
I could go on and on. But the bottom line is that the ratings agencies’ tough talk about the U.S. bond rating – to the extent they really do intend to follow through on it – probably has more to do with fighting the reputation for laxity they earned during the crash than with any special knowledge they might have regarding U.S. government finances.
