So imagine for a moment that you are the person at, say, Moody’s Investor Services in charge of deciding whether to lower the credit rating of the United States of America. Would the last four weeks have firmed up your impression that the Obama Administration and the US Congress has matters well in hand? That the road to American fiscal health was now well-lighted and freshly paved? Or would you be saying to yourself: “downgrade immediately, these people are hopeless.”
The question is the answer. What happened over the course of the last four weeks crystallized the view that US federal governance is an international embarrassment. The Obama Administration pretends that taxing NetJets customers and hedge fund managers is the pathway to fiscal health. The Tea Party people pretend that risking the credit rating of the United States of America is sensible policy-making. The Democrats pretend that Social Security and Medicare remain inviolate. The old-timer Republicans pretend that they’re still in charge. It isn’t governance. It’s inane.
But in the real world, the person in charge of making the decision about the credit rating of the United States of America has to be hyper-cautious about authorizing a downgrade. Europe hangs by a thread, literally. Italy is on fire. Spain is reeling. Greece is hopeless. Portugal is next. Malta is doomed. France is over-leveraged. One supposes that Germany could swallow them all up and create the German European Union, but, ah, that’s a bit…..problematic, to use a diplomatic term.
Any kind of credit “event,” no matter how distant geographically, has the potential of being “disruptive,” in the way that Lehman was “disruptive” in the autumn of 2008. The simple fact is that the global economy cannot handle a “Lehman event” right now. The global financial system can’t handle it.
So, rule number one for the Moody’s man has to be: no events. Despite that fact that a downgrade is fully deserved, it will almost certainly not be forthcoming. Not yet. And not any time soon.
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