In retrospect, it looks like President Obama should have put Standard & Poor’s scion Terry McGraw on his birthday invitation list.
Just a day after the president danced with the likes of Jay-Z in the Rose Garden, S&P pulled its AAA rating from America’s debt securities, punctuating a week of fitful trading in which the Dow fell nearly 6 percent and many world markets lost even more.
By now you’ve probably heard dozens of commentators say the S&P decision is significant, a “wake-up call” for Washington. In fact, it is really the financial equivalent of tot mom Casey Anthony giving a Learning Annex seminar on parenting. And even that is an insult to the Learning Annex.
What company, other than Moody’s, did more to aid and abet the US housing bubble by slapping its coveted AAA imprimatur on a sloppy stew of sub-prime mortgages for customers happy to pay handsomely for the honor? Standard and Poor’s.
Now, that the whole messy pot has boiled over, S&P is downgrading America’s debt at the end of a week that underscored just how many IOU’s Uncle Sam has had to print to help to clean up a bubble that could have been prevented had S&P been more judicious with its AAA rating in the first place.
In downgrading America’s debt late on a Friday night in August, S&P misses the point once again. By virtue of our printing press and the fact that all of our debt is denominated in dollars, the US has no foreseeable risk of not meeting its obligations.
What has been dawning on market observers far smarter than S&P of late is that what’s really being downgraded, is the value of those US dollars. The same thing is going on in Europe, where Rome is burning financially and a huge euro-printing program looks to be on the horizon.
Like the debt-ceiling showdown that dominated the discussion last week, the S&P downgrade of US debt is a sideshow, a needless distraction from the greater problem. The risk for those who lend to the US Treasury isn’t that they won’t get paid back, it is that they will be paid back in increasingly worthless dollars.
Perhaps S&P should spend a little time this weekend thinking about why the only asset class that gone up in value amid all this August angst is the one asset that no one ever has had any need to rate.
That asset is gold.