For those who want to muck around in some dark and tangled weeds, here’s Treasury’s description of the big math error made by S&P in their initial downgrade analysis. Apparently, they fell prey to the old baseline mistake…hey, it happens.
The figure shows the increase in debt as a share of GDP with and without the error. It’s lower, of course, once you use the correct (lower) baseline. But it’s still rising.
Source: US Treasury (by acting asst sec’y John “Baseline” Bellows)
Which leads me to once again underscore what I think is A CRITICAL AND THUS FAR OVERLOOKED POINT. (Sorry to shout at you on Sunday morning like that—I just think it’s really important).
As I show here, if you combine the savings from the debt ceiling deal with the expiration of the highend Bush tax cuts, you do actually stabilize the debt to GDP ratio–not forever–nothing’s forever, especially without bending the health-cost curve. But within the ten-year budget window, the debt/GDP trend flattens out.
That, my dear super-committee, is the way forward.
Parents—here’s a great opportunity to tell your children that someday, they may very well use all that math they’re (supposed to be) learning.
Though in the spirit of full disclosure, I guess you have to tell them the mistake didn’t make much difference. S&P was hell-bent on the downgrade and wouldn’t let a $2 trillion boo-boo get in their way.