Blaming S&P

By -
Being in a hotel right now, I have cable TV. Therefore, I get to see a number of pundits who seem to be blaming S&P for the ongoing market turmoil. My initial reaction is that this is a bit like a guy who eats bacon and mayonnaise sandwiches three meals a day, smokes two packs of cigarettes, doesn't exercise, and then blames the doctor who reports his high blood pressure for his insurance being cancelled.

Comments

  1. dkuehn7:29 AM

    Perhaps. But I think it may be more like a guy that eats bacon every once in a while and is getting to the age where he's thinking it may be smart to switch over to turkey bacon, two or three doctors agree that would be wise, and then another doctor comes along, freaks out, and tells his insurance company he's on his death bed.

    I'd work the bond market into that analogy except I can't think of how I would do that.

    ReplyDelete
  2. gcallah7:38 AM

    My second reaction was to think that Daniel's scenario might also be the case.

    But I just don't follow the sovereign debt market enough to have an informed way of deciding between the two analogies. Anyone have any interesting pointers to good analysis here?

    ReplyDelete
  3. traumerei3:33 PM

    I think the scenario in Gene's original post is more likely. Japan was downgraded to AA+ when its debt-to-GDP (not that this is the only rating factor) reached 60.4%. S&P and Moody's have had a negative outlook for the US for at least the past year based on our increasing deficits. We're pretty much following the path Japan did (perhaps down to their AA- in a decade)

    http://www.theatlantic.com/business/archive/2011/05/chart-of-the-day-us-debt-following-japans-trajectory/239387/

    Our debt-to-GDP has risen to 85%. Egan Jones Rating (NRSRO) as well as a Chinese ratings agency had downgraded us weeks ago so S&P's rating isn't completely out of the blue.

    A 50% increase in debt over a decade (+$5 Trillion) combined with a recession is going to have some effect on bond-repayment risk. This is definitely the eats bacon and mayonnaise sandwiches, doesn't exercise and now his blood pressure is up 50% from 140 to 210.

    Besides, a AA+ is not analogous to a doctor freaking out and saying he's on his death bed. AA+ indicates a "very strong" likelihood of getting paid back versus "extremely strong" for AAA.

    Death bed would have to be junk status or below.

    ReplyDelete

Post a Comment

Popular posts from this blog

Libertarians, My Libertarians!

By -
Cruel to be kind means that I love you . Because, while I think you are mistaken, your hearts are in the right place -- yes, even you, Silas --  unlike some people . This Breitbart fellow (discussed in the link above), by all appearances, deliberately doctored a video of Shirley Sherrod to make her remarks appear virulently racist, when they had, in fact, the opposite import. I heard that at a recent Austrian conference, some folks were talking about "Callahan's conservative turn." While that description is not entirely inaccurate, I must say that a lot of these people who today call themselves conservative give me the heebie-jeebies.
Read more

"Pre-Galilean" Foolishness

By -
 I am currently reading The Master and His Emissary , which appears to be an excellent book. ("Appears" because I don't know the neuroscience literature well enough to say for sure, yet.) But then on page 186 I find: "Asking cognition, however, to give a perspective on the relationship between cognition and affect is like asking astronomer in the pre-Galilean geocentric world, whether, in his opinion, the sun moves round the earth of the earth around the sun. To ask a question alone would be enough to label one as mad." OK, this is garbage. First of all, it should be pre-Copernican, not pre-Galilean. But much worse is that people have seriously been considering heliocentrism for many centuries before Copernicus. Aristarchus had proposed a heliocentric model in the 4th-century BC. It had generally been considered wrong, but not "mad." (And wrong for scientific reasons: Why, for instance, did we not observe stellar parallax?) And when Copernicus propose
Read more