I’d like to reiterate my opinion of rating agencies.
They’re a sham in an inbred system that lacks any semblance of checks, balances or accountability.
It’s the first time ever that a rating agency has downgraded the United States and even today, nearly a week later, the implications of the downgrade aren’t clear.
On Monday, the Dow Jones industrial average plummeted, dropping more than 630 points.
As stocks moved into free-fall territory, investors jumped into U.S. Treasury bonds. On Tuesday, the market gained 429 points.
When a rating agency issues a downgrade, it is essentially telling investors that the investment in question has become riskier; that it’s more of a gamble that you’ll get your money back.
But as the world markets teetered, people with money were flocking to Treasury bonds. Instead of yields going up — which would be normal for bonds carrying a downgrade — they were dropping. It became cheaper for the U.S. to borrow money.
And despite S&P’s assessment, it’s clear that the smart folks with the money still think Uncle Sam is a good investment.
S&P’s credibility was further tarnished when it was discovered that the rating agency had made a $2 trillion miscalculation in its methodology but continued with its plans for a downgrade anyway.
But despite S&P’s best efforts to blackball U.S. Treasury bonds, it was an unsavory stew of uncertainty, economic strains in Europe, concerns for Japan’s ability to recover from the tsunami quickly enough and general bad news all around that contributed to the market tumble. After all, the Dow lost 513 points a week ago today based on troubles in Italy and before the downgrade.
Investors were skittery and looking to stash their cash somewhere safe, even pushing the price of gold above $1,700 an ounce, which had me once or twice looking down at my wedding ring and wondering what an ounce of gold looks like.
That’s not to say S&P’s decision didn’t make matters worse.
I believe it did.
Bad news and fear are contagious. And when the headlines talk about the death of heroes in Afghanistan, riots in London and fears of economic collapse in Italy and Spain, investors start moving their money to protect it while the rest of us start buying canned food and filling the bathtub up with water.
In its report, S&P pointed more toward politics as the reason for the downgrade than the relative security of U.S. bonds, saying that “the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.”
They go on to say that they are pessimistic about the ability of Congress and the Obama administration to work out their differences over fiscal policy.
Too many Republicans in Congress refuse to compromise. Instead, they are driven by ideology and a hatred and anger at the very institutions they were elected to lead.
The United States has mid- and long-term debt problems. But we have bigger problems right now. Too many Americans don’t have jobs, our economy is crawling along and could slip into a second recession and too many of our political leaders prefer brinkmanship to problem solving.
We’re spending so much time worrying about our cholesterol that we don’t realize we’re standing in the middle of the street and a bus is headed right for us. A diet won’t help if we don’t get out of the way.
We need jobs and we need to give people the tools to be successful, which include a quality education, access to affordable health care and a safe and secure place to live.
Brave men and women are fighting in wars; we should raise the money to pay for them. Our roads are crumbling; we should fix them. We’ve added tax cuts and new programs we can’t afford; we should change them.
And we should tell S&P to shove its downgrade. That might just help the economy too.
David Farmer is a political and media consultant. He was formerly deputy chief of staff and communications director for Gov. John E. Baldacci and a longtime journalist. You can reach him at email@example.com. Follow him on Twitter @dfarmer14.