Downgrading America

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Standard & Poor’s issued a warning today that it might downgrade U.S. debt if no deal is made to rein in the deficit. Or, more precisely, it might not downgrade debt, but might declare that America’s AAA rating isn’t quite as good as some other countries’ AAA rating. Or something. In any case, Matt Yglesias says we should ignore them:

The thing about the United States of America is that we’re not an obscure country. Nor is our sovereign debt an obscure financial instrument. No major investor is going to be outsourcing his research on the desirability of American bonds to the S&P ratings service. There are two metrics to keep an eye on when assessing American debt. One is the interest rate the Treasury has to offer to get people to buy the debt. Currently that number is low. The other is the “spread” between bonds that are indexed for inflation and bonds that aren’t indexed for inflation which serves, among other things, as a gauge of market assessment of the risk that we’ll have no choice but to inflate the debt away. Currently that number, too, is low.

I agree with this completely, and I’ve made a similar comment in the past. And yet…..

And yet, there’s something to think about here. One of the reasons I take our medium and long-term deficit fairly seriously, even though current financial indicators suggest the market is unconcerned, is that financial indicators can turn around in a flash. There are limits to how far a big country like the United States can get from fundamentals, but we’re still susceptible to the kinds of mob emotion that power both bubbles and bank runs. And the thing is, there’s never any telling what might spark such a turnaround. One day everything is fine. Then Bill Gross announces that he’s no longer thrilled about holding treasuries. The next day S&P makes some negative noises. A day after that the Chinese government cuts back on treasury purchases. Then an auction of 10-year bonds is slightly soft, and suddenly everyone panics.

This most likely won’t happen. Certainly not anytime soon, given the underlying fundamentals of the American and global economies. Still, it could happen in the near future, and there’s no telling what might set it off. So in that sense, this kind of announcement from S&P actually is meaningful. Maybe not today. But a similar announcement someday might be. It’s true that major investors don’t outsource their opinion on U.S. treasuries to S&P, but even major investors can get nervous if enough people start telling them they’re being idiots. Sometimes perceptions are as important as reality.

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Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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