Alan Greenspan just said on Meet the Press that the downgrade has hit at the self esteem of the U.S. more than he expected.
Austan Goolsbee gave a good reason why he’s surprised: S&P made a critical maths error, he said on the show.
In general, they both criticise the S&P for making a maths error and they say that the U.S. is fine and Treasuries are still safe.
But Greenspan says he’s concerned about a market crash on Monday because history suggests it will take a while for this to bottom out.
Of course they also address the fact that U.S. politics are in shambles and the economy needs stimulation. The question is how.
Here’s what they just said about the downgrade.
Will the markets crash on Monday?
Greenspan: It’s difficult to say but they only test we have is the Israeli market and it has tanked. But also, there are protests there [and the market was not open on Friday, so it’s playing catch-up], so I don’t know whether it’s one or the other.
But considering the momentum that the market went down in the past week, history says it will take a while for this market to bottom.
My projection is negative. But Treasuries are still safe. The U.S. can pay any debt it has because it always can print more money.
The S&P hit a nerve that there’s something basically bad going on. And it’s hit the self esteem of the U.S., it’s hit the psyche more than I expected. Because the economics is very clear to me. We’re fine. But this was about the debt ceiling, and how Congress negotiated to the brink.
John McCain says don’t shoot the messenger, don’t shoot the S&P.
Austan Goolsbee: S&P made a $2 trillion dollar maths error. The S&P downgrade was based on questionable mathematics. The ratings agencies that didn’t make a maths error are still rating the U.S. AAA.
Will there be a double dip?
Greenspan: Another recession depends on Europe, not the U.S. We were doing fine until Italy ran into trouble. That destabilized the Euro.
We need to stimulate the economy. But the question is how? The cumulative effect of financial regulation might be suppressing economic growth, an issue Jamie Dimon probed Bernanke about weeks ago.
Greenspan: There’s a reasonable argument that that’s correct. Raising taxes and spending cuts are necessary measures, but both hurt the economy.