By Peter Galuszka
Here’s a little reality check.
Baconauts and Boomergedons have been ecstatic, if not orgasmic, over the totally unnecessary and dangerous debt ceiling standoff in Congress and Standard & Poor’s downgrading of U.S. credit. It has been amusing to see them wash themselves in glory as they congratulate each other on their prescience. If only the book had sold better!
Still reality does sneak back on little cat feet. Today’s news is that Fitch Ratings did not downgrade U.S. credit, but kept it at a AAA+ rating. A downgrade could come if Congress keeps acting as a bunch of Tea-drunk imbeciles. Moody’s also has kept Washington at AAA+. That leaves S&P, a firm I know well, since I used to work for its parent firm and I understand just how dicey S&P can be, especially when it applies its genius to the likes of Enron or subprime mortgages.
Another countervailing indicator is Alan Blinder, a Princeton professor and former vice chair at the Fed. Blinder is not exactly Baconaut material. He’s not bankrolled by the Koch Brothers and he’s not associated with some neo-con, libertarian outfit in the shadow of George Mason University, that hallowed, Tier One institution of higher learning.
Blinder, who isn’t all that impressed with the S&P downgrade considering the source, points out that if the U.S.’s credit-worthiness is so dodgy, how come so many spooked investors ran to Treasury bills when the S–T (sorry I’m not James Young, so I won’t spell it out) hit the fan last week. I mean, if the U.S. government is ready to fall flat on its face, as the author of “Boomergeddon” would have you believe, why the run on T-bills? This is “not exactly what you would expect from a downgrade. In practice, S&P downgraded itself,” he writes in today’s Wall Street Journal.
To be sure, Blinder is truly concerned about what the Federal Reserve, in its usual euphemism, has said about the state of the nation’s economy — namely that it’s really, really bad. He’s troubled that Fed Chief Ben Bernanke has stated so obviously he’s going to keep the federal funds rate very low for the near term. After all Uncle Ben is running out of bullets.
Blinder’s message is watch the Fed and forget S&P. Also, forget all the doom and gloom you read on this blog. Take some to heart, but keep in mind there’s a strong undercurrent of negative thinking here. It’s a kind of financial nannyism (“Eat up your peas and carrots because the financial end is near and here’s an exact timetable for our misery.”).
I take a different view. Last week I was relaxing on the sand near Cape Hatteras. A small school of dolphins (symbol of good luck) was swishing in and out of the waves. Their message: “Don’t worry, this, too, will pass.”
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