Aug 03, 2012 at 5:40 pm
Remember the catastrophic debt downgrade from a year ago, when the S&P credit rating agency took the US debt rating down a notch and interest rates, according to some scolds of the day, like Rep Paul Ryan, were going to go through the roof?
Yeah, me neither.
But MarketPlace does, and they did a nice lookback on this issue (H/t: PVdW).
[Marketplace]: As far as worst predictions, it would take a medal stand the size of a swimming pool to hold all the people who were wrong. But we’ve only got room for one, so the gold goes to Republican Congressman Paul Ryan, speaking on Fox just after the downgrade.
Paul Ryan: Obviously, not only does it hurt the federal government in its ability to close the deficits, but it hurts people. You know, car loans, home loans, all these things are gonna go up.
Didn’t happen. In fact, the opposite occurred. Home loan interest rates are now at record lows, in large part because global investors kept faith that America would always pay its debts.
Here’s what I said at the time but I was far from the only one who thought S&P was making a foolish mistake.
The issue here is not “we told you so.” It’s about respecting a key rule of the economics of debt, deficits, and markets. Be very wary of those who tell you how the market is going to react to any given level of public debt. Such reactions are highly dynamic and relate importantly to the point in the business cycle, the relative health of our economy compared to that of others, the Fed’s monetary policy, investors expectations and sentiments, and a bunch of other stuff.
Forget that rule and you’ll step in it like S&P and Ryan did.
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