Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Monday, August 08, 2011

S&P pantsed by U.S. Treasury

I have been reluctant to condemn the credit-rating agencies for sovereign downgrades because it seemed like shooting the messenger. As the bond markets have noticed, a few European countries have serious fiscal problems. Blaming the raters for also noticing did not seem like an effective response.

However, I think that Standard and Poor's decision -- alone among the major raters -- to downgrade the U.S. has severely discredited the agency (bad pun intended). The U.S. Treasury has posted a stinging note about a calculation mistake underlying this decision. Interestingly, the magnitude of S&P's error was equal to the amount by which it judged the U.S. deficit-reduction plan to fall short: $2 trillion over ten years.

Paul Krugman emphasizes the amateurish nature of S&P's mistake. But what strikes me is that, when Treasury officials pointed out the error, the agency just changed its main rationale for the downgrade and immediately proceeded with the public announcement. It seems that S&P had made up its mind and did not want to be confused by the facts.

A few commentators have tried to defend S&P by claiming that its initial assumptions were as legitimate as, or more realistic than, the Treasury's assumptions. I am no expert on American budgeting, but I do not think that is the issue.

My reading of the Treasury's post is that S&P costed the deficit deal based on one assumed baseline and then subtracted the result from a different baseline. Doing so would be wrong, whichever baseline is right.

Origin
Source: Rabble.ca 

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