We all make mistakes

UC Berkeley grad spots $2 trillion S&P debt downgrade error

Blog from San Francisco Chronicle 8/11/11

It took the sharp eye and calculating mind of John Bellows, a UC Berkeley 2009 Economics Ph.D grad, to catch the $2 trillion error in Standard & Poor's credit rating that has roiled the global markets since it was issued Aug. 5. Bellows noted that S&P based its judgment on a projection that the U.S. debt as a share of the nation's gross domestic product would rise rapidly over the next 10 years. The error, which S&P acknowledged in private conversations with the Treasury Department, estimated that the U.S. debt would be 8 percentage points higher by 2021 than if correctly estimated. Instead of rescinding the downgrade, S&P changed its rationale. Bellows wrote in the Treasury Department blog: "Independent of this error, there is no justifiable rationale for downgrading the debt of the United States government."

Full article at: http://www.sfgate.com/cgi-bin/blogs/opinionshop/detail?entry_id=95131

Just an editorial note from yours truly. The last sentence is actually the key. Treasury securities are promises to pay dollars. The U.S. can create dollars. Therefore, any default is political and has nothing to do with the usual measures such as debt-to-income that are used for borrowers (such as the State of California) that can't create the currency in which they borrow. There could be a political decision but you and I know as much about that as S&P. S&P provides no - NO! - insight on that issue beyond common knowledge. S&P is looking for a) publicity (which it got) and b) redemption from the mortgage debacle (which it helped to create).

There is no redemption from "b". But there is the S&P song: