# What are the odds that Congress manages to screw up the US credit rating again?
**URL:** https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808
**Category:** The BBQ Pit
**Created:** [July 29, 2013, 12:46pm UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808 "2013-07-29T12:46:11Z")
**Posts on this page:** 20
**Page:** 9
### Author:  [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)
#### Post date: [August 15, 2013, 12:16am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/161 "2013-08-15T00:16:52Z")
> [@Measure\_for\_Measure](#):
>
> I have in mind some sort of study of various sovereign downgrades and upgrades.
And now we get to the working papers:
Credit Ratings and the Pricing of Sovereign Debt during the Euro Crisis by Joshua Aizenman, Mahir Binici, and Michael Hutchison.
Their abstract says that upgrades have a pronounced effect on sovereign debt prices. That’s interesting because it’s sometimes argued that credit bureaus don’t know anything that the market does with respect to governments. The abstract also states that behaviors after the start of the financial crisis were a lot different than behaviors before it. They continue:
> [@](#):
>
> Using spline regressions, we also find a complicated non-linear pattern dependent on the level of the credit rating, with high sensitivity (large change in spreads for a given change in ratings) at the very low end of credit ratings and then a U shape pattern-- ratings at the moderately low end (B-) and very high end of credit levels (above A) are fairly insensitive, while middle ratings are quite sensitive to credit rating changes (with the highest sensitivity at the cutoff for investment-grade bonds). Contagion from rating downgrades in GIIPS to other euro countries is not evident once own-country credit rating changes are taken into account.
So in general the effects of a AAA to AA+ downgrade would be expected to be smallish anyway, even if the economy in question wasn’t the largest in the world.
I have not read the paper.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [August 15, 2013, 12:29am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/162 "2013-08-15T00:29:49Z")
That’s a nice wall-o-text you got there. So what do you think it means? Let’s see if it actually means anything to you because I’m betting it doesn’t. I think the best you’ll be able to do is make some superficial observations that are already contained in the text you quoted and that’s about it.
But I’ll give you some hints - which you wouldn’t need if you’d been following this thread or even read a few of my other posts.
What is the relationship between the value of the dollar, the value of dollar equivalents such as treasuries and interest rates. IOW, if the value of the dollar falls, what happens to the rates on treasuries?
What happened to the rate on the 10 year back in June? Why didn’t the rebound in the dollar affect the price of treasuries (still depressed)?
What is it that investors fear most - uncertainty. Does the political situation contribute to that uncertainty or not? How does that affect the dollar?
If we are in an economic recovery and there is 2-3 trillion in excess reserves, what is the greatest danger that creates? Why? How will that affect the dollar?
Get back to me whenever you’re ready.
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### Author:  [@Trinopus](https://boards.straightdope.com/u/Trinopus)
#### Post date: [August 15, 2013, 1:35am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/163 "2013-08-15T01:35:39Z")
**Measure for Measure** : Thank you for actually addressing the question. That the results might have been opposite of what would be expected is fascinating.
Real world economics have an unusual tendency to shear away from theoretical predictions. The last several times the minimum wage has been increased, the result has not been the decrease in employment that might be predicted from the simplest Econ. 101 cost-availibility curves.
I’ve actually got enough math to know what spline regressions are. I don’t have the knowledge to apply such a tool to the economics issues at hand. I have to depend on kind persons such as you to try to make things clear. The fact that the issue is incredibly complex doesn’t make that job any easier!
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [August 15, 2013, 1:50am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/164 "2013-08-15T01:50:00Z")
Oh good. Then maybe you can summarize his post for us. You see my contention is, that like so many people here, he thinks that quoting a few sources and tossing it in a post means something. In this case, it didn’t. But more than that, I’m fairly certain that neither of you can even translate any of that into language most people will understand since neither of you have any clue yourselves.
I have proved time after time after time that I know when people are simply pretending and I’ve demonstrated that every . . . single . . . time. Both of you are completely ignorant of anything that goes beyond the superficial meaning of those quotes and I’m calling both of you out.
I’m going to make both of you look like fools for even making the attempt and it starts by showing that you can’t even draw simple, econ 101 implications from anything that was said.
And since either both of you have the attention span of a garden slug or you never saw the first time, but I’ve already dealt with the issues raised mulitple times but neither of you know enough to even realize that. You are both so laughably ignorant it’s just a shame that no one else here has the training to appreciate what fools both of you are.
So. Hows that for throwing down the gauntlet. What are you going to do about it?
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### Author:  [@Trinopus](https://boards.straightdope.com/u/Trinopus)
#### Post date: [August 15, 2013, 2:27am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/165 "2013-08-15T02:27:20Z")
> [@deltasigma](#):
>
> . . . Both of you are completely ignorant of anything that goes beyond the superficial meaning of those quotes and I’m calling both of you out. . . .
I’ve never denied my ignorance. I’ve said from the beginning, I’d like the issue explained to me.
**Measure for Measure** gave it a go. You haven’t. I’m still willing to learn from you. Are you willing to teach?
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [August 15, 2013, 2:29am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/166 "2013-08-15T02:29:02Z")
> [@Trinopus](#):
>
> I’ve never denied my ignorance. I’ve said from the beginning, I’d like the issue explained to me.
>
> **Measure for Measure** gave it a go. You haven’t. I’m still willing to learn from you. Are you willing to teach?
No. Shut the fuck up and stay out of my way.
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### Author:  [@Zakalwe](https://boards.straightdope.com/u/Zakalwe)
#### Post date: [August 15, 2013, 3:04am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/167 "2013-08-15T03:04:48Z")
Holy Christ, **deltasigma** , could you possibly be more of a fucking dick in this thread? Damn dude. Even people who think you might be right don’t like you. That’s slightly impressive (in a train-wreck sort of way).
I sincerely hope you don’t rely on selling your ideas to people for a living, because you suck at it.
Don’t bother to answer 'cause I really don’t give a shit what you think about anything anymore.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [August 15, 2013, 3:09am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/168 "2013-08-15T03:09:38Z")
> [@Zakalwe](#):
>
> Holy Christ, **deltasigma** , could you possibly be more of a fucking dick in this thread? Damn dude. Even people who think you might be right don’t like you. That’s slightly impressive (in a train-wreck sort of way).
>
> I sincerely hope you don’t rely on selling your ideas to people for a living, because you suck at it.
>
> Don’t bother to answer 'cause I really don’t give a shit what you think about anything anymore.
Look asshole, do you mind if I call you asshole? You have no fucking idea what this thread is really about. It has nothing to do with the title you pathetic moron and if you’d read more than the 5 posts permitted by your insectoid attention span you’d realize that so don’t you even dare to think you have the right to say jack shit about my fucking behavior. You’re even more of a dipshit than the Olsen twins here since you don’t even know what they do and they know virtually nothing.
No one participating here has the slightest fucking interest in the issues. But if you can tell me what they are are interested in, I’ll get you some nice warm breast milk.
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### Author:  [@septimus](https://boards.straightdope.com/u/septimus)
#### Post date: [August 15, 2013, 3:09am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/169 "2013-08-15T03:09:45Z")
> [@Trinopus](#):
>
> I’ve never denied my ignorance. I’ve said from the beginning, I’d like the issue explained to me.
I’m afraid even the smartest professors and key economic policy-makers don’t know the answers either. :smack:
For one thing, an economics paradox (I forget the name; it’s superficially related to Heisenberg Uncertainty – to observe is to change) means that when policy-makers focus on controlling an indicating parameter (as Fed tries to control interest or inflation) _that parameter ceases to be useful as an indicator_. :smack:
Another problem, I think, is the sheer scale of interventions. One government agency (Treasury) issues a trillion dollars of debt; another agency (Federal Reserve) buys it up. Some of the first-order effects cancel, but, since a trillion dollars is a lot of money, the less-studied _second_-order effects can be important.
AFAICT, only **deltasigma** knows the answers. I sure hope he twitters the President’s advisers on a regular basis, 'cuz I’m not sure they know what they’re doing!
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [August 15, 2013, 3:15am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/170 "2013-08-15T03:15:15Z")
> [@septimus](#):
>
> I’m afraid even the smartest professors and key economic policy-makers don’t know the answers either. :smack:
>
> For one thing, an economics paradox (I forget the name; it’s superficially related to Heisenberg Uncertainty – to observe is to change) means that when policy-makers focus on controlling an indicating parameter (as Fed tries to control interest or inflation) _that parameter ceases to be useful as an indicator_. :smack:
>
> Another problem, I think, is the sheer scale of interventions. One government agency (Treasury) issues a trillion dollars of debt; another agency (Federal Reserve) buys it up. Some of the first-order effects cancel, but, since a trillion dollars is a lot of money, the less-studied _second_-order effects can be important.
>
> AFAICT, only **deltasigma** knows the answers. I sure hope he twitters the President’s advisers on a regular basis, 'cuz I’m not sure they know what they’re doing!
You idiot. You actually think that the Fed buys US paper from the Treasury? You’re not even at the level of a fucking circus monkey in terms of understanding this shit.
Un fucking believable. But you have the unmitigated gall to continue to pretend. Jesus this place is incapable of fighting ignorance. It’s a fucking carrier.
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### Author:  [@septimus](https://boards.straightdope.com/u/septimus)
#### Post date: [August 15, 2013, 4:03am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/171 "2013-08-15T04:03:04Z")
> [@deltasigma](#):
>
> You idiot. You actually think that the Fed buys US paper from the Treasury? You’re not even at the level of a fucking circus monkey in terms of understanding this shit.
Let me guess. If the fruit vendor has to ask the ice cream guy to make change for my $20, then she didn’t get the $10 from me, she got it from the ice cream guy?
I retract any kind word I ever offered you. I’m sure there are Dopers with lower theoretical IQs than you, but when everything is factored in, you are by far the stupidest dip-shit turd that ever defecated on this message board.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [August 15, 2013, 4:05am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/172 "2013-08-15T04:05:00Z")
> [@septimus](#):
>
> Let me guess. If the fruit vendor has to ask the ice cream guy to make change for my $20, then she didn’t get the $10 from me, she got it from the ice cream guy?
>
> I retract any kind word I ever offered you. I’m sure there are Dopers with lower theoretical IQs than you, but when everything is factored in, you are by far the stupidest dip-shit turd that ever defecated on this message board.
You see. You don’t even understand WHY things are done that way. You want to waive it off as a technicality.
I’ll bet you can’t even pronounce moron. Is ‘human’ your second language?
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### Author:  [@Hellestal](https://boards.straightdope.com/u/Hellestal)
#### Post date: [August 15, 2013, 6:45am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/173 "2013-08-15T06:45:18Z")
> [@Measure\_for\_Measure](#):
>
> With that as background, I take issue with Martin Hyde’s stance.
Maybe I missed some previous part of your exchange – this thread was quiet for a while – but I really don’t think you give **Martin Hyde** a completely fair shake here, at least based on the context of the post you quoted.
> [@Measure\_for\_Measure](#):
>
> > [@Martin\_Hyde](#):
> >
> > They aren’t irrelevant but I think their power vis-a-vis the United States is less than would be assumed. A company being downgraded, especially to below investment grade, is a serious thing. It significantly raises their borrowing costs and can even cause investors to flee the stock in panic. Similarly sub-national sovereigns like States and sub-State government entities like municipalities can be in bad shape if their credit is downgraded because it will actually increase their borrowing costs. But it appears that the United States and its treasury securities became no less attractive based on S&P’s analysis, and in fact we continued to borrow at historically low interest rates after the downgrade.
>
> Ok, first of all an event study -or a before and after comparison- won’t necessarily pick up the effects of an S&P downgrade. In the corporate world, the stock market tends to lead financial difficulties more than changes in credit ratings - the latter is fairly reliable with respect to _ordinary_ business problems, but slow. Yes, yes, the rating agencies screwed up with their assessment of exotic financial instruments. The point is that if S&P or Moody’s downgrades debt, that could reflect a deterioration in fundamentals _that is already priced into the market_. So a downgrade can be a bad thing, without there being any observed immediate changes in the market.
You’re being fuzzy with cause and effect here.
If the deterioration in the fundamentals is already priced into the market before the downgrade, then it’s the deterioration of the fundamentals that is the cause of _both_ the market price _and also_ the downgrade. That would mean that the downgrade itself is not a bad thing, but merely one further indicator of the bad thing. The check engine light coming on isn’t a bad thing in and of itself. It’s an indicator that there’s a problem under the hood. And it’s a late indicator in this case if the market already took notice of the engine troubles and already took the effort of pricing those troubles. For a real car, the red light coming on might be an important indicator, but for a monster market like US Treasuries, it’s simply not relevant from an information standpoint. Everyone already has significant attention focused on this engine, and the light can’t possibly tell us anything new. The observers who flick the switch have no special view of this particular engine. Frankly, I think that’s what has already been explained in this thread. The one wrinkle is if some investors are contractually/legally obligated to hold AAA assets and nothing else. Then the downgrade could cause some issues around the edges, but I’m pretty sure **Martin Hyde** already specifically addressed such cases.
> [@Measure\_for\_Measure](#):
>
> > [@Martin\_Hyde](#):
> >
> > The downgrade only matters if investors have somewhere else to park their money.
>
> Well yeah, I agree. But I opine that the S&P downgrading reflected a true change in the fundamentals. AAA means, “Don’t worry about credit risk. Focus your attention elsewhere.” AA+ means, “This is a terrific credit, but there are some aspects of risk that you need to think about.” When a sizable fraction of Congress isn’t committed to strong governance and timely payments – that’s something that creditors need to weigh before they loan funds for 10 or 30 years.
>
> A downgrade to AA+ may not matter now, but I suspect that it could affect borrowing costs to some small extent if a large, liquid and safe market appears elsewhere. That may very well happen some day.
I don’t think he was summarily dismissing that possibility, just pointing out its unlikeliness.
I would make the further point that a downgrade wouldn’t lead investors to seek greener pastures in the case of US Treasuries, again because it’s a monster market that everyone already knows about. If there were an alternative, investors would be seeking it out even before the credit agencies reacted and turned on the red light.
> [@Measure\_for\_Measure](#):
>
> > [@Martin\_Hyde](#):
> >
> > However, the idea that we don’t need a debt ceiling doesn’t actually make sense, the fact that you espouse the idea suggests you do not understand the Constitution. The Constitution provides that the President cannot put the United States one cent further in debt without Congressional approval. The debt ceiling is just pre-approved debt, sort of like a “credit card” (this is the best “personal finance” equivalent I can think of.) Congress has approved the limit on that “credit card” so it’s a-okay, but there is no valid constitutional or even logical argument that the President should be able to put us as far into debt as he wants with no restrictions–it’s so obviously a bad idea it was written into the Constitution as something Congress has to approve.
> >
> > The alternative to the debt ceiling, wasn’t the President getting whatever he wants (which seems to be what many believe), but rather it was Congress literally approving every bond sale as often as necessary.
>
> This is misleading. The great majority of modern democracies don’t have a debt ceiling discussion: the legislatures merely appropriate funds and impose taxes: borrowing makes up the mathematical difference. There’s no _practical_ reason why the US couldn’t do the same and some have argued that even _legally_ mathematically conflicting commands by Congress should be settled by automatically permitting debt issuance. (Bruce Bartlett if you want a cite.) Now when I took this line of argument **Ravenman** pointed out the error of my ways. I’m just saying here that the barriers to the US acting the way the rest of the world does are nowhere near as clear as you seemed to indicate.
I think you misread him here.
He specifically indicated the US Constitution in his explanation of why we “need” a debt ceiling. You respond with examples of foreign countries… that don’t use the US Constitution. They’re not relevant to his point. He was making the same point that the legal eagles here on the SDMB were making: the debt ceiling is necessary as far as US law goes. (Frankly, I don’t see anything limiting Congress from setting the limit at 250% of GDP, automatically recalculated annually, but that is another discussion.) So you’re basically repeating his point again for him: Regardless of the practical irrelevance of such a debt ceiling in the vast majority of other countries, the US can’t do without one for legal reasons.
> [@Measure\_for\_Measure](#):
>
> > [@Martin\_Hyde](#):
> >
> > The House GOP uses the debt ceiling because they can, if your system existed they’d just hold us hostage more during debates over continuing resolutions or whatever. The only way to stop the House GOP from “holding government hostage” is to actually remove all power of the purse from congress.
>
> Misses the point. The House GOP can hold the government hostage with limited accountability at the moment. If they passed a law saying, “We will furlough workers at the DoD and EPA in these ratios”, then voters can better assess their actions than if they say, “We won’t raise the debt ceiling, Mr. President: you deal with the fallout.” That’s not an especially transparent method of setting policy, especially when leading media figures are prone to distribute blame equally regardless of the behavior of one party or another.
Okay, on this I agree with you.
> [@septimus](#):
>
> I’m afraid even the smartest professors and key economic policy-makers don’t know the answers either. :smack:
>
> For one thing, an economics paradox (I forget the name; it’s superficially related to Heisenberg Uncertainty – to observe is to change) means that when policy-makers focus on controlling an indicating parameter (as Fed tries to control interest or inflation) _that parameter ceases to be useful as an indicator_. :smack:
[Goodhart’s Law.](http://en.wikipedia.org/wiki/Goodhart%27s_law)
I want to point out here that there’s a difference between measures that banks have direct control over, such as loan creation, and broader macroeconomic forces like nominal spending or inflation which can’t be manipulated in the same ways.
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### Author:  [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)
#### Post date: [August 15, 2013, 8:20am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/174 "2013-08-15T08:20:54Z")
> [@Zakalwe](#):
>
> Holy Christ, **deltasigma** , could you possibly be more of a fucking dick in this thread?
Possibly. You may note that he’s shifted to a rhetorical position whereupon he wants me to make his arguments for him. That’s rarely a good sign. At any rate, he’s not worth bothering worth, at least on this page.
**Hellestal** provides some solid and informed analysis.
> [@Hellestal](#):
>
> …I really don’t think you give **Martin Hyde** a completely fair shake here, at least based on the context of the post you quoted.
I may have misunderstood him.
> [@](#):
>
> You’re being fuzzy with cause and effect here.
>
> …The check engine light coming on isn’t a bad thing in and of itself. It’s an indicator that there’s a problem under the hood.
I agree with this. I just think that there’s a real a risk that Congress will do something that a) causes the economy to shrink further and b) causes S&P to downgrade. The latter is a scandal IMHO (US credit quality should be unquestionable), but its direct economic effects are pretty manageable. The check engine light is a decent analogy, as it is an unreliable but still occasionally useful indicator of bad things.
> [@](#):
>
> I would make the further point that a downgrade wouldn’t lead investors to seek greener pastures in the case of US Treasuries, again because it’s a monster market that everyone already knows about. If there were an alternative, investors would be seeking it out even before the credit agencies reacted and turned on the red light.
Right. But if Congress screws the pooch, a credit downgrade would be an objective indicator that they’ve …screwed the pooch. Just not an especially reliable one.
I’m suggesting that while the OP may have been mangled, the exceptionally bad policy coming from the Republican Congress may do lasting damage. Though honestly I restarted this thread because the distinctions in my mind between the sequester, the default ceiling and the like were getting foggy in my mind and I wanted to review them. These distinctions matter. I’m trying to work out the rough magnitude of the damage next Fall’s antics could/will do. For example the sequester lowers aggregate demand, but it doesn’t actually mandate governmental default. Very different things. The latter is far worse.
Incidentally, we may also be witnessing bad policy driving out the good. Despite all the sequester drama, the Republican House has been unable to pass an appropriations bill (for [HUD and Transport](http://talkingpointsmemo.com/archives/2013/07/gops_long-predicted_comeuppance_has_arrived.php?ref=fpblg)) that’s consistent with the budget cuts they passed in broad outline early this year. In a normally functioning democracy, that would cause them to lose face. My point is that these sorts of antics paper over all manner of legislative incompetence, in addition to making a large, timely and sensible infrastructure program a political nonstarter.
> [@](#):
>
> He specifically indicated the US Constitution in his explanation of why we “need” a debt ceiling. You respond with examples of foreign countries… that don’t use the US Constitution. They’re not relevant to his point. He was making the same point that the legal eagles here on the SDMB were making: the debt ceiling is necessary as far as US law goes. (Frankly, I don’t see anything limiting Congress from setting the limit at 250% of GDP, automatically recalculated annually, but that is another discussion.) So you’re basically repeating his point again for him: Regardless of the practical irrelevance of such a debt ceiling in the vast majority of other countries, the US can’t do without one for legal reasons.
Well, I’d have to get into the weeds again with one of Ravenman’s posts. I know this is a dodge but the guy at Calculated Risk has called for the abolishment of the debt ceiling and I find it very hard to believe that a law couldn’t be written that would do that. If that’s not possible, I would call for the re-establishment of the Gephardt rule, which removed the issue from at least one of the two chambers. I’m basically expressing a form of simple disbelief which admittedly isn’t the strongest argument, though I maintain that’s it’s not _de minimus_ in this instance.
As I said earlier, I debated this with Ravenman some time back and didn’t exactly emerge victorious. Still worth a revisit, if only to refresh my memory. I’d pull the cite, but we’re in the pit where standards are a little lower.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [August 15, 2013, 8:33am UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/175 "2013-08-15T08:33:31Z")
> [@Measure\_for\_Measure](#):
>
> Possibly. You may note that he’s shifted to a rhetorical position whereupon he wants me to make his arguments for him. That’s rarely a good sign. At any rate, he’s not worth bothering worth, at least on this page.
Actually what I’m doing is looking for some indication that you know virtually anything about economics, finance or even something tangentially related. I’ve been here for a week proving myself, you haven’t proved jack except that you can use the quote button. That IS impressive by the standards of this thread, but then again, not really.
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### Author:  [@Trinopus](https://boards.straightdope.com/u/Trinopus)
#### Post date: [August 15, 2013, 7:48pm UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/176 "2013-08-15T19:48:54Z")
> [@septimus](#):
>
> I’m afraid even the smartest professors and key economic policy-makers don’t know the answers either. :smack: . . .
Makes it tough on poor schlubs like me, when we get called upon to vote for a political party on the basis of their economic policies!
Still, I can’t comfortably vote for a party that deliberately shuts down the government by refusing to pay its bills. New Gingrich learned that lesson: there are a lot of people who don’t approve of that.
What’s particularly sad is that there are a few moderate Republicans who know this, and who did learn the lesson, and, although they outnumber the Tea-Heads, they’re afraid to speak up. When they do say something moderate – “Let’s not shut down the government” – they raise outrage from the extremists now outflanking them, and are forced to retract.
One thinks of Robespierre, eventually sent to his own guillotine.
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### Author:  [@Trinopus](https://boards.straightdope.com/u/Trinopus)
#### Post date: [August 15, 2013, 7:51pm UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/177 "2013-08-15T19:51:41Z")
> [@deltasigma](#):
>
> . . . I’ve been here for a week proving myself . . .
No, you’ve been making assertions, and not backing them up. When asked for an explanation of an actual economic matter, you bluntly refused. As far as everyone else is concerned, you have bluntly disproven yourself. You are an expert only in your own mind. (Small subject.)
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### Author:  [@pancakes3](https://boards.straightdope.com/u/pancakes3)
#### Post date: [August 15, 2013, 8:01pm UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/178 "2013-08-15T20:01:05Z")
> [@deltasigma](#):
>
> Actually what I’m doing is looking for some indication that you know virtually anything about economics, finance or even something tangentially related. I’ve been here for a week proving myself, you haven’t proved jack except that you can use the quote button. That IS impressive by the standards of this thread, but then again, not really.
When you were linking to the volatility index as an example of indicators being reactionary vs predictive (kind of a tangent point), you hyperlinked your browser history instead of the intended link so… irony happens, I suppose.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [August 15, 2013, 8:12pm UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/179 "2013-08-15T20:12:00Z")
> [@Trinopus](#):
>
> No, you’ve been making assertions, and not backing them up. When asked for an explanation of an actual economic matter, you bluntly refused. As far as everyone else is concerned, you have bluntly disproven yourself. You are an expert only in your own mind. (Small subject.)
I’m sure it’s just a coincidence but that’s pretty much the same response I get when I talk to my cat too.
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### Author:  [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)
#### Post date: [August 15, 2013, 8:39pm UTC](https://boards.straightdope.com/t/what-are-the-odds-that-congress-manages-to-screw-up-the-us-credit-rating-again/664808/180 "2013-08-15T20:39:08Z")
> [@Hellestal](#):
>
> I would make the further point that a downgrade wouldn’t lead investors to seek greener pastures in the case of US Treasuries, again because it’s a monster market that everyone already knows about. If there were an alternative, investors would be seeking it out even before the credit agencies reacted and turned on the red light.
The odd thing is that you would think that any ratings change for an OECD country wouldn’t make a difference at all. Yet the abstract of the working paper I quoted upthread indicates otherwise. If your sovereign credit rating is below A or above B-, changes in credit ratings have pronounced effects on bond prices. (Again, though, I haven’t read the paper).
Odder still, credit agencies usually telegraph their moves for months or years before they actually adjust the ratings. A rating change really should be a non-event. My tentative take is that such announcements jolt the market and crystallize the largest existing inchoate investor fear. So we might pause before making definitive predictions that abstract away from the particulars of a given time. A move from AAA to AA+ could precipitate (modest) changes in bond market prices in either direction.
Maybe. If you buy that hypothesis.
The post-2007 era certainly has been interesting. We used to think that risk-free securities were traded in the market: I’m no longer convinced of that. And yet I haven’t heard of any efforts to create an insured AAA alternative to US treasuries, even as a niche market. Unsurprising to most market participants I’d wager, but somewhat at odds with most intermediate financial texts.
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