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Home Publications Blogs Beat the Press S&P Thought the Federal Government Would Forget How to Print Dollars

S&P Thought the Federal Government Would Forget How to Print Dollars

Tuesday, 11 June 2013 04:39

What other possible interpretation could anyone give to S&P's downgrade of U.S. government debt two years ago? The question that S&P is supposed to answer with its rating is whether bonds will be paid off as scheduled. The United States issues debt denominated in dollars, which it has the ability to print in whatever number it desires. Therefore the downgrade can only have been taken to mean an increased probability that the country would forget how to print dollars.

It would be good to point this fact out in news articles that report on the rating agencies' plans to reverse this downgrade. Otherwise readers might be led to believe that S&P assessments are actually based on the risk that the United States will default on its debt.

Comments (12)Add Comment
written by Last Mover, June 11, 2013 5:51

From the article:
Those tax increases, along with automatic spending cuts that kicked in March 1 and higher payments to the Treasury from the mortgage firms Freddie Mac and Fannie Mae, have shrunk the government’s budget deficit. The deficit is the gap between the revenue government collects and the money it spends on everything from Medicare to defense.

Get it? S&P is effectively endorsing Keynesianism here, but in reverse. Now that the deficit is slowing and reducing growth necessary to reduce more unemployment, the rating is increased.
written by foosion, June 11, 2013 6:12
What other possible interpretation

That a company which helped cause the subprime meltdown by giving high ratings in order to generate business was worried about its liability and thought this was the best way to avoid liability? After the downgrade, they could claim any government suit was political retaliation. They could ally themselves with Fox and the rest of the right-wing noise machine, including congressional Republicans.

Wouldn't you want to protect yourself if you'd helped cause the world economies to melt down? This seems a much better strategy than blaming the government for contributory negligence.
Ignorance is the best medicine
written by Grumpa, June 11, 2013 7:20
The world market ignored S&P, as should we. Their ratings are meaningless. They are now just a cog in corporate management's advertising schemes to make their benefits, more valuable.
written by skeptonomist, June 11, 2013 8:15
The real threat of default which led S&P to downgrade US bonds came from Congress, not anything the Fed might do or not do. Congress has the power to cause default by failing to pass the necessary budget bills, and Republicans are still threatening to do it for political purposes. Apparently S&P judges this political threat is now less for various reasons. It is possible that the way the ECB intervened to quell the crisis in the bonds of the peripheral European countries played a role in S&P's thinking, but the problem in the US was political and it still exists to some extent.
US Government downgrades S&P
written by Peter K., June 11, 2013 8:56
The article could have mentioned that the Federal Government has a $5 billion lawsuit against S&P/McGraw-Hill over fraudulent ratings, as do some states.

S&P cited numbers, not Congress in its downgrade
written by Dean, June 11, 2013 9:20
S&P did not base its downgrade on the risk that Congress would not raise the debt ceiling. At least that is not what they said, so unless someone has some inside info, I would go by what they said at the time (and are saying today).
written by skeptonomist, June 11, 2013 11:36
According to what's quoted in Wikipedia


S&P was very explicit about the role of the partisan conflict in the downgrade. I don't know how it could be clearer.
written by skeptonomist, June 11, 2013 12:05
Should rating agencies like S&P assume that the Fed and other central banks will do what Dean Baker or any other economist thinks they should? Aside from the partisan conflict in Congress, the Fed is under pressure from various interests, including some of its own board members, not to print money in what many think is excessive quantities. The Fed bought massive quantities of MBS's in QE1 to prop up that market, but the ECB refused for a long time to buy the bonds of the peripheral countries and I think the fears of default on those bonds were very real. How will the next Fed chairman handle things?

I agree that the downrating was not justified for a number of reasons, and that S&P places too much value on debt control, but there is some (small) danger of default for political reasons, and central banks can't always be counted on to follow the best and wisest course, even if it is really known and uncontroversial.
S&P: Smarter than you think
written by Capt. J Parker, June 11, 2013 3:17
The downgrade came right on the heels of sharp rebukes of being asleep at the wheel along with threats from all the Monday morning quarterback pols who wanted to be sure to deflect blame away from themselves - and I mean BOTH sides of the aisle. S&P knows how fiat currencies work. But congress was screaming about how unresponsive they were to increasing risks so "here's a downgrade for ya." Just their way of saying "Mess with the bull - get the horns."
Another alternative...
written by Alex Bollinger, June 12, 2013 6:24
is that the S&P is a bunch of rich dudes with rich dude priorities and thought they could inflict some austerity on the US if they added to deficit hysteria. Clearly that wouldn't appear in their public statements, but I don't think the financial sector has such a great track record of honesty that we should limit ourselves to their public statements.

Why rich dudes consider austerity a priority is left as an exercise to the reader.
written by Chris Engel, June 12, 2013 7:46
Dean Baker was MMT before MMT was cool!
written by watermelonpunch, June 12, 2013 10:09
Haven't we known for some time that ratings agencies rate things in such a way as benefits them?
Nobody faced any real consequences for doing so & causing a financial crisis. Why would they change?

As Grumpa says:
Their ratings are meaningless. They are now just a cog in corporate management's advertising schemes to make their benefits, more valuable.

I have for some time now believed that's all they ever were --> An advertising agency gussied up to look like a scientific lab of economics & finance. No such thing exists. All the scientists are on Wall Street and all the economists are on K Street.
They don't seek the truth about how the world works... they seek ways to make the world work for them.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.