Here’s a conspiracy theory proven shaky before it was even inked — Moody’s is threatening to downgrade America’s credit rating due to a plot to kill Social Security and Medicare. Rather than due to genuine U.S. debt concerns.
This record must be kept in mind when considering the possibility of a Moody’s downgrade of U.S. government debt. It is no secret that many on Wall Street would love to see Social Security and Medicare cut back or even privatized. Investment banker Peter Peterson has even committed $1 billion toward promoting this agenda. When Moody’s threatens to downgrade U.S. government debt, or if it actually does so, it may reflect its actual assessment of the creditworthiness of the U.S. government or it could be a reflection of the Wall Street agenda to cut back these key public programs.
There is one way in which the public can better recognise Moody’s motivations. All banks, including giants like Citigroup and Goldman Sachs, hold huge amounts of U.S. government debt. There are also reliant on the U.S. government for all sorts of reasons, including potential bailouts. If the U.S. government were to default on its debts, then it would almost certainly wipe out every major bank in the country. There is no plausible scenario in which the U.S. government defaults on its debts and the banks will still be able to make good on their debt payments.
This means that if Moody’s were to downgrade the government’s debt, to be consistent it must also downgrade the debt of Citigroup, Goldman Sachs and the other big banks. If Moody’s downgrades the government’s debt, without downgrading the debt of the big banks — or even threatens to downgrade the government’s debt without also threatening to downgrade the debt of the big banks — then it is more likely acting in pursuit of Wall Street’s political agenda than presenting its best assessment of the creditworthiness of the U.S. government.
Mr. Baker is basically trying to discredit those who worry about a deterioration of U.S. credit worthiness. His line of thinking seems to find it inconceivable that massive U.S. debt and unsustainable long-term spending commitments could have any effect on a nation’s credit worthiness.
Too bad America has, in fact, already been downgraded in the eyes of global markets. As we highlighted a few days back:
Berkshire Hathaway recently sold debt at 3.5 basis points less than Treasuries of similar maturity, and that Procter & Gamble and Lowe’s have seen their debt trade at lower yields than Treasuries as well. For a country with a rock-solid credit rating, this is pretty staggering (even if we are looking at temporary anomalies). Whatever credit ratings firms may say, markets have now made it pretty clear that the U.S. is far from a risk-free debtor.
Markets now perceive some U.S. corporates to be less risky debtors than the U.S. government since they ask for lower yields on similar debt. This a huge change from the past when markets perceived U.S. debt as lower risk. U.S. credit concerns are very real, and not just found in Moody’s research.