Tags: Krugman | S&P | downgrade | error

Economist Krugman: S&P Ignored the Facts, Cut Not Deserved

Sunday, 07 Aug 2011 09:49 AM

Economist Paul Krugman says there are good reasons to be concerned about U.S. government debt, but S&P's downgrade ignored the facts and drew the wrong conclusion.

"It’s hard to think of anyone less qualified to pass judgment on America than the rating agencies," Krugman writes in The New York Times. "The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?"

“In short, S&P is just making stuff up — and after the mortgage debacle, they really don’t have that right.”

Krugman says the S&P knew it got the math wrong by $2 trillion but went ahead with the downgrade.

According to Krugman, the ratings agency suggested that the downgrade depended on the size of agreed deficit reduction over the next decade “with $4 trillion apparently the magic number.”

“Yet U.S. solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs, so a couple of trillion more or less barely signifies in the long term,” says Krugman. “What matters is the longer-term prospect, which in turn mainly depends on healthcare costs.”

Berkshire Hathaway CEO Warren Buffett heartily agrees. “In Omaha, the U.S. is still triple A,” Buffett tells Fox News. “In fact, if there were a quadruple-A rating, I’d give the U.S. that.”

“Think about it. The U.S., to my knowledge owes no money in currency other than the U.S. dollar, which it can print at will. Now if you're talking about inflation, that's a different question."

© 2017 Thomson/Reuters. All rights reserved.

 
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Economist Paul Krugman says there are good reasons to be concerned about U.S. government debt, but S P's downgrade ignored the facts and drew the wrong conclusion. It s hard to think of anyone less qualified to pass judgment on America than the rating agencies, Krugman...
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2011-49-07
Sunday, 07 Aug 2011 09:49 AM
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