|Note how much quicker the climb is under the original, flawed estimate.|
Similarly, they have previously explained that while a $4 trillion deal could have saved our credit rating, a $2.4 trillion deal — which is what we got — was insufficient to stabilize the debt. But since their original calculations misplaced $2 trillion, the deal and the correction should have added $2.4 trillion + $2 trillion to our bottom line. That, again, is more than $4 trillion.
Amusingly, it might not actually matter. Sure, stocks are dropping, but that started before the downgrade. But demand for U.S. Treasury Bonds is as high as ever, and in fact bond prices ticked up slightly. Interest rates, in turn, also dropped slightly. Rather than abandon all faith in the safety of Treasury bonds, investors have reaffirmed that faith in spades.More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
It looks like the upshot of all this is that rather than lose faith in the United States, investors are losing faith in S&P instead - an idea echoed by none other than Warren Buffett. Standard and Poor's probably had this coming as a result of their role in the financial crisis, of course. I'm not going to shed any tears if they lose a little prestige. But there really is no other obvious answer to what happened here: they downgraded themselves instead of the United States.
The funniest part is that their analysis of our political system isn't actually wrong. A week ago, we were within hours of an outright default. And it happened because a sizable portion of Congress is apparently made up of nine-year-olds, rather than those 25 and over as we all thought was required. S&P's mistake - well, aside from the terrible math - was conflating that with everything else, and going too far in pursuit of making a political point. And that's an error they might not ever recover from.