The World Keeps Spinning

The headlines of major news portals in the world on Monday seem surreal. Who would have imagined that one day a risk rating agency, in this case Standard & Poor’s, could lower the rate of the United States?

In technical language, the analysts of such a prestigious and controversial company changed the outlook for the rating of the U.S. government from stable to negative. In layman’s terms, this means that this agency, in theory specialized on evaluating the payment of debt issuers (whether they are governments or corporations), is warning the market that the U.S. fiscal situation needs long term care.

S&P, as it is known, says the United States, still considered a safe haven for the global financial market, is not so safe. Or at least are not as reliable today as it was in a not so distant past. Ten years ago, when Bill Clinton left office in 2001, the U.S. Treasury was buying back debt. That is, the quantity of treasuries in circulation throughout the world decreased year by year. And trust went in the opposite way: it just grew.

Bush Jr. took over and right away resorted to fiscal stimulus measures to push the economy out of recession. The policy of increased government spending and monetary laxness was amplified in 2008, in the crisis produced by the policy itself. Only with a lot of money from the government — and the introduction of new money into circulation — the U.S. managed to avoid a crisis equal to the Great Depression. With virtually no choice, Barack Obama maintained and expanded the lax policy which he inherited a bit.

It is fine that S&P and its main competitors (Moody’s and Fitch), had their credibility beyond tainted after they dropped the ball in the Asian crisis of 90’s, and in the U.S. subprime crisis in 2008. But, for better or for worse, their ratings are closely watched by investors.

Seeing U.S. debt ratings downgraded was not even possible in fiction stories. But the economic world since the collapse of Lehman Brothers has span around. More than spinning, it has been tumbling.

The message is clear and Socratic: all that we know of international economy today is that we know nothing.

Former Federal Reserve Chairman Alan Greenspan also emerged from the 2008 crisis with his image damaged. And didn’t the ‘maestro,’ yesterday also warn of a possible fiscal crisis in the U.S.? He said, “This crisis is so imminent and so difficult that I think we have to allow the so-called Bush tax cuts all to expire. That is a very big number, ” he said during a TV show.

In many aspects the world is no longer the same. Doubting of the Unites States’ ability to pay is one of them. But in others, everything continues as it has always been: people, who like Greenspan made a mess while in power, do not feel embarrassed giving a suggestion when they are back in the private sector.