Tags: S&P | ratings agency | Medicare | health care costs | U.S. debt

Baker: S&P Downgrade Is Another Rating Agency Failure

Monday, 08 Aug 2011 08:54 AM

Economist Dean Baker says Standard and Poor's downgrade of U.S. government debt is newsworthy primarily as another colossal failure by a major credit rating agency.
 
"If S&P were being honest, it would have written about the need to fix the U.S. health-care system," Baker rites in opednews.com. "Instead it talked about the need to cut Medicare."
 
"Of course, if U.S. health care costs were comparable to those in any other country in the world, then we would be looking at massive surpluses in the long-term, not deficits."
 
U.S. government debt and its derivatives (e.g. the $5 trillion of mortgage backed securities issued by Fannie Mae and Freddie Mac) are the backbone of the U.S. financial system and indeed the world financial system, notes Baker.
 
“If U.S. debt is in fact less creditworthy, then all the banks and financial companies that rely on its value should also be less creditworthy,” says Baker. “Yet, we didn't hear of J.P. Morgan, Goldman Sachs and the rest being put on the watch list for a downgrade.”
 
“Why not? Perhaps this is because S&P doesn't take its own rating seriously.”
 
U.S. debt is issued in dollars, payable in dollars and the U.S. government has the ability to print dollars, Baker observes.
 
“This may carry a risk of inflation, but S&P is not in the business of making inflation predictions, they are in the business of assessing the likelihood that debt will be repaid,” Baker says.
 
“This downgrade was not made based on the economics. We can only speculate about the true motive.”
 
Baker's opinion isn't shared by everyone, of course. RTT News reports that the National Inflation Association suggested that a AAA rating should be reserved for countries that have budget surpluses, low levels of debt that could easily be paid off without printing money, and low levels of inflation.

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Economist Dean Baker says Standard and Poor's downgrade of U.S. government debt is newsworthy primarily as another colossal failure by a major credit rating agency. If S P were being honest, it would have written about the need to fix the U.S. health-care system, Baker...
S&P,ratings agency,Medicare,health care costs,U.S. debt
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2011-54-08
Monday, 08 Aug 2011 08:54 AM
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