Like many, many others, I’m pretty worried right now about the economic future of the United States. I’m not concerned with our fundamentals–I’m concerned with our political insanity and our apparent capacity for self-destruction…the Tea Party’s absolute intransigence, and the President’s amazing weakness in the face of the former.
That said, the basis for S&P’s ratings downgrade is called into serious question by this statement from the Treasury Department, which suggests the ratings agency was starting with the answer, and then looking for a rationale–a classic motivated reasoning behavior:
In a document provided to Treasury on Friday afternoon, Standard and Poor’s (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake. After Treasury pointed out this error – a basic math error of significant consequence – S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one….
…Independent of this error, there is no justifiable rationale for downgrading the debt of the United States. There are millions of investors around the globe that trade Treasury securities. They assess our creditworthiness every minute of every day, and their collective judgment is that the U.S. has the means and political will to make good on its obligations. The magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P’s ratings action.
What do you think? Could motivated reasoning upend world markets? I myself have little doubt that this is possible. After all, if you were informed of a $ 2 trillion error in your calculations, wouldn’t you want step back and wait, and collect your thoughts, rather than stampeding ahead with a previously agreed-upon action….especially with the stakes so high?