Let's see, if the bond rating agencies lower the credit rating for the U.S. then, if we look at the NYT chart, the interest rate on U.S. Treasury bonds may fall from today's 3.0 percent to 1.1 percent paid by AA- paid by Japan. There is little evidence that the markets pay a great deal of attention to the credit rating agencies. Note that many countries with lower ratings pay considerably less in interest than those with higher ratings.

The piece also includes a bizarre paragraph stating:

"But in the broader economy, if money that might have gone to new purchases or increased investment were instead diverted to higher interest payments, the result could be slower economic growth and a higher jobless rate for the remainder of the year, analysts warn.

Macroeconomic Advisers said the country’s gross domestic product could slow in the second half of this year to 2.6 percent from a forecasted 3.2 percent, and that the jobless rate could end the year at 9.6 percent, above the 9.2 percent expected."

This sounds bad, but then we hear:

"Joel Prakken, chairman of Macroeconomic Advisers, said any change in interest rates would probably be small and not felt for several years."

Okay, so the impact on interest rates and will be small and not felt for several years, but yet we have the same outfit projecting sharply lower growth in the second half of 2011. These are not consistent.

The piece continues with the quote from Prakken:

"'The real story is whether the uncertainty will cause consumers and companies to stop spending,' he said.

On that front, some analysts noted that corporations stopped spending long before the debt-limit debate hit the news.

'Companies clearly have had record cash on the books for a year and a half now,' said Alec Young, an equity strategist at Standard & Poor’s Equity Research. 'Yes, they’re not spending the money, they’re not hiring, but is it because of this issue?'”

No, this ain't what the data show. New orders for non-defense capital goods rose 5.8 percent in May from April. For the year to date they are running 14.0 percent above last year's levels.

The deference in this article to the judgement of the credit rating agencies shows a remarkable ignorance of recent events. At this point, these outfits are one step ahead of the law. They should hardly be dictating fundamental political decisions to the nations.



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