Media Blame Conservatives for Ratings’ Downgrade

So Moody’s is threatening to downgrade US debt from AAA to Aaa. This gives reporters fodder for interrogating Republican politicians because they need to “do more.” The Associated Press reports:

Moody’s Investors Service said Tuesday that it would likely cut its “Aaa” rating on U.S. government debt, probably by one notch, if budget negotiations fail.

Boehner was asked at a Capitol Hill news conference how confident he was that negotiations would prevent the government from hitting the so-called fiscal cliff — an economy rattling set of across-the-board spending cuts and higher taxes caused by the expiration of Bush-era tax cuts that are set to hit in January.

“I’m not confident at all,” Boehner said.

As the story reads, it seems Boehner then felt a need to defend himself and his fellow Republicans from the charges of fiscal irresponsibility, reminding reporters of past accomplishments.

Personally, I think the Congress is horribly irresponsible. But I’m with Team Boehner on this one. He shouldn’t have to prove anything in response to threats by the ratings’ agencies.

Let’s do a reality check. First of all, remember that S&P has already downgraded US debt. So what happened? Virtually nothing. The economy was bad both before and after S&P took action — but no one needed a ratings agency to tell them about it. In fact, S&P wasn’t really making an economic statement but lobbying about politics (see the video below for more). The ratings agency would have been just as happy with a tax increase as with any other action.

And on top of that, they made an error of $2 trillion in their calculations!

Secondly, let’s remember that ratings agencies have little to do with a free market economy. They were created by government manipulation and are little more than a quasi-government entity that serves Wall Street interests. Law professor Frank Partnoy pointed out in the Wall Street Journal that

“the major ratings firms assess the creditworthiness of the U.S. government, even as they depend for their profits on the special status bequeathed by the government. Since 1975, the SEC has anointed a small group of firms as Nationally Recognized Statistical Rating Organizations (NRSROs), and money market funds and brokerages have no choice but to hold securities rated by them. To this day, the Fed will only accept assets as collateral if they carry high ratings from S&P, Moody’s and Fitch.”

This may lead some to believe that the ratings agencies would never threaten the government’s rating. But that is simplistic. By threatening to downgrade our debt, Moody’s is acting at the behest of one wing of the government financial complex in order to pressure the wing that is more directly under the control of the voting public — Congress.

Thirdly, since when have these ratings agencies ever been economically helpful? On the contrary, their influence in giving “collateralized debt obligations” (CDOs) a Triple A rating is what fueled the financial bubble that devastated the economy.

Yes, the national deficit and national debt are tremendous problems. We already know that. The ratings agencies are just noise. They have been part of the problem, and we should ignore what they say.

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