Fight disinformation. Get a daily recap of the facts that matter. Sign up for the free Mother Jones newsletter.


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.

HERE ARE THE FACTS:

Our fall fundraising drive is off to a rough start, and we very much need to raise $250,000 in the next couple of weeks. If you value the journalism you get from Mother Jones, please help us do it with a donation today.

As we wrote over the summer, traffic has been down at Mother Jones and a lot of sites with many people thinking news is less important now that Donald Trump is no longer president. But if you're reading this, you're not one of those people, and we're hoping we can rally support from folks like you who really get why our reporting matters right now. And that's how it's always worked: For 45 years now, a relatively small group of readers (compared to everyone we reach) who pitch in from time to time has allowed Mother Jones to do the type of journalism the moment demands and keep it free for everyone else.

Please pitch in with a donation during our fall fundraising drive if you can. We can't afford to come up short, and there's still a long way to go by November 5.

payment methods

ONE MORE QUICK THING:

Our fall fundraising drive is off to a rough start, and we very much need to raise $250,000 in the next couple of weeks. If you value the journalism you get from Mother Jones, please help us do it with a donation today.

As we wrote over the summer, traffic has been down at Mother Jones and a lot of sites with many people thinking news is less important now that Donald Trump is no longer president. But if you're reading this, you're not one of those people, and we're hoping we can rally support from folks like you who really get why our reporting matters right now. And that's how it's always worked: For 45 years now, a relatively small group of readers (compared to everyone we reach) who pitch in from time to time has allowed Mother Jones to do the type of journalism the moment demands and keep it free for everyone else.

Please pitch in with a donation during our fall fundraising drive if you can. We can't afford to come up short, and there's still a long way to go by November 5.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate