What are the odds that Congress manages to screw up the US credit rating again?

[YogSothoth]

@Martin_Hyde

Your problem appears to be that the Republican controlled House won’t just do whatever the Democrat in the White House and the Democrats in the Senate want.

Lets stop right there. I know we have ideological differences that may never be resolved, but this is beyond a simple minority party objection. These are the facts you should know I believe in, before arguing that this is just some Democratic power play:

Fact: Obama is not some super ultra socialist. He’s fairly moderate
Fact: The GOP has obstructed more than any minority party ever has, both in number and type of filibusters, and the blocking of bills that would, in almost any other era, be passed without fanfare
Fact: The GOP has forced a credit downgrade the likes of which this country has never had since the establishment of these rating agencies and the protections created after the Great Depression
Fact: The GOP is so anti-science you can easily get quotes from actual Republican Congressman in charge of things like science and health advocating crap that 99% of scientists can prove false
Fact: The GOP leadership has been on record saying that a non-working government is the best kind of government

These are not partisan beliefs, these are real facts and I believe them. You may spin them into some digestible moderation, but I wouldn’t be convinced. Therefore, this isn’t about having the GOP kowtow to the Democrats, this is about the unprecedented hatred and obstruction of any law that’s objectively good for the nation being blocked. So it is in that spirit that I make my objections to them, that is the ENTIRELY the fault of the GOP we are at this impasse, that they have crossed the line and are continuing to cross it, and that they must be stopped. Any solution that favors the Democrats is the better solution, and any solution that slaps the GOP’s cadre of whiny children is a good one. There is no equivalency here, the GOP is objectively bad for the country and their power needs to be taken away

You can ridicule that, and I expect you will, but we are arguing from entirely different places, different planets. If you cannot see that the GOP has become the actual traitors they used to accuse the Democrats of, then no plan of mine will ever satisfy you.

@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. Recognizing that, do you seriously think one branch of government should have all executive powers and be allowed to craft budgets on their own, set tax rates on their own, and basically be wholly unaccountable to the legislative branch? :dubious:

Given the state of the GOP House, I’m in favor of whatever reduces their power. And I would completely disagree with you that simply having the pursestrings would render the Legislative branch impotent. They still make the laws that govern everything else, so let the president budget for what he feels is best. Hell, it would make the president much more accountable to the American people, as we no longer have to pretend that the president sets the budget

@Martin_Hyde

What you actually proposed, although I suspect you did not realize it, would be either no change at all (because the Congress would just hold things hostage during the CR process instead of the debt ceiling process–and the President cannot legally operate government agencies without appropriations) or you were implying the President should have unilateral budgeting power. If you don’t think that would turn us into a dictatorship, I suggest you read the history of the British system of government and how the power of the purse is basically how, over centuries, Parliament actually turned into a democratic body. An executive with no checks on his power cannot be trusted not to become a tyrant.

You didn’t answer my question. This is a presidency (and I’m talking about GWB here, in case you’re confused) that has done the unthinkable and removed habeas corpus, designated certain combatants to have no rights of any sort, tortured people, started an entirely personal war, funded that outside of the budget, etc. And that, in your mind, does not make us a dictatorship but giving him the power to appropriate money does?

@Martin_Hyde

Also, as another poster mentioned President Bush did not use the line item veto. President Clinton did, and he was the only President to use the tool as the Line Item Veto Act was passed during his term in office and struck down by the SCOTUS not too long afterward.

My mistake then

@Martin_Hyde

However if you look at your list of complaints, I’ll not all of those are executive actions, appropriating and providing for the raising of money has always been a legislative action. So it is actually materially different to say, “the President has full power to appropriate money” than it is for the President to operate CIA “black sites.” That may seem ridiculous on the face of it, until one recognizes our system of checks and balances has as one of the key checks on the Presidency that the President cannot act basically except for where Congress has provided him with laws allowing his actions (except in limited areas like his role within the military and his role negotiating with foreign leaders etc), and the President cannot spend a cent of money until it has been appropriate by Congress, and he can’t even raise revenue without legislation providing for tax rates and etc. That is by far, the single biggest power Congress has–power of the purse, and it is why no President in history has been able to just ignore Congress. Take that power away and it would be why no President in history gave Congress the time of day.

This is where we’ll differ then because I simply do not believe that sky falling scenario

[Trinopus]

@YogSosoth

. . . Fact: The GOP has forced a credit downgrade the likes of which this country has never had since the establishment of these rating agencies and the protections created after the Great Depression . . .

That’s the way I’d understood it. The credit rating agencies dropped us from AAA to AA+. This, at least, seems to be historical fact.

My question: did this have an actual measurable deleterious effect? Did we have to start paying more for the money we borrow? Did it increase the interest on the debt?

And will it happen again? It seems that the Republican leadership is starting to learn. Boehner is starting to shift his priorities from “Harm Obama” to “Serve the Country.” He’s already taken a couple of small steps away from scorched-earth obstructionism. So, I’m going to bet, optimistically, that, while we’ll run over the warning track, we won’t hit the wall.

[RTFirefly]

@deltasigma

I see we have another late comer to the party who hasn’t bothered to read the whole thread.

Well, it’s not like I can really blame you of course, but it IS annoying. :rolleyes:

Well, I’m deeply sorry for having annoyed you :D, but my answer is both short and true.

The long version is that “the U.S. credit rating” isn’t something administered by credit rating agencies. Their work (assuming honesty on their part, which may be a stretch, given the past decade) is useful in being able to quickly assess the approximate creditworthiness of the bonds of a company that you aren’t able or willing to come to your own evaluation of.

What some credit rating outfit thinks of the U.S. government doesn’t matter one bit - as demonstrated by the nonexistent repercussions of the downgrading of U.S. government debt by one of those agencies. People are capable of arriving at their own estimation of the U.S. government’s creditworthiness. And we’ve gotten past the point where anyone thinks the U.S. will default on its bond payments.

[deltasigma]

@RTFirefly

Well, I’m deeply sorry for having annoyed you :D, but my answer is both short and true.

The long version is that “the U.S. credit rating” isn’t something administered by credit rating agencies. Their work (assuming honesty on their part, which may be a stretch, given the past decade) is useful in being able to quickly assess the approximate creditworthiness of the bonds of a company that you aren’t able or willing to come to your own evaluation of.

What some credit rating outfit thinks of the U.S. government doesn’t matter one bit - as demonstrated by the nonexistent repercussions of the downgrading of U.S. government debt by one of those agencies. People are capable of arriving at their own estimation of the U.S. government’s creditworthiness. And we’ve gotten past the point where anyone thinks the U.S. will default on its bond payments.

Since you continue to show that you are ignoring the real issues here, as I have stated more times than I care to count now, I’ll let you have have this discussion with someone more your intellectual equal.

Here kitty kitty.

[Measure_for_Measure]

In general, I find insults to be distasteful, but mockery is another matter entirely. Lampooning another’s arguments can fight ignorance, but it’s best to drop the clownishness if your opponent shows signs of seriously grappling with the issues. In other words, give modest props to quality posters, those who understand that evidence must be weighed and usually all doesn’t point in a single direction. (Though occasionally it does.)

With that as background, I take issue with Martin Hyde’s stance.

@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.

@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.

@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.

@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.

Anyway the question, " What are the odds that Congress manages to screw up the US credit rating again?" would be a pretty good one in Elections or GD. A drop in the US credit rating might not have immediate impact on the economy any more than a lower thermometer reading causes cold temperatures. Rather, a drop by Moody’s would be an indicator of piss-poor governance, something that is Bad in and of itself.

What are the odds that Congress manages to screw up the US credit rating again? And when is the next Republican led financial drama scheduled for? Mitch McConnell is being primaried by a tea party maniac, and he may feel obliged to gut the effectiveness of the Federal government, lest he be perceived as being soft on sanity. What are the key dates?

[Measure_for_Measure]

@RTFirefly

And we’ve gotten past the point where anyone thinks the U.S. will default on its bond payments.

Well not exactly. The US went into technical default in 1979, when the Treasury paid off a sliver of T-Bill interest with a short delay, due to computer problems connected with debt ceiling posturing. One economic study indicates that the snafu ended up costing the federal government billions in higher interest payments.
http://articles.washingtonpost.com/2011-07-10/business/35238255_1_treasury-bills-default-debt-limit

The Republican default threat of 2011 involved much greater consequences.

[clairobscur]

@deltasigma

I won’t deny that I’m also fairly bright but I think that’s self-evident if you’ve read more than a few dozen of my posts on any matters of substance.

I know that dopers have the reputation (undeserved IMO) of being a bragging bunch, but…wow!

You do realize that there’s a bunch of bright and educated people on this board, don’t you?

[deltasigma]

@clairobscur

I know that dopers have the reputation (undeserved IMO) of being a bragging bunch, but…wow!

You do realize that there’s a bunch of bright and educated people on this board, don’t you?

It’s not my fault people decided to make the thread about me rather than the issue. I was only servicing my fans.

[septimus]

@Trinopus

The credit rating agencies dropped us from AAA to AA+. …
My question: did this have an actual measurable deleterious effect?

One important part of the answer hasn’t been made in the thread (though it was hinted at by Martin Hyde).
The U.S.A. is unique in that bad economic news for the U.S. tends to drive up the price of U.S. assets – exactly the opposite of what would be expected for other countries.

The reason is that the U.S. is such a dominant engine for the world economy – driving China’s exports for example – that bad news for the U.S. becomes very bad news for the rest of the world. (Look at Asian business newspapers: market fluctuations are often connected directly to U.S. domestic decisions.)

Thus, it can be argued that U.S. bonds hold their value not despite a credit downgrade, but because the worrisome downgrade leads investors to seek safety!

[deltasigma]

@septimus

One important part of the answer hasn’t been made in the thread (though it was hinted at by Martin Hyde).
The U.S.A. is unique in that bad economic news for the U.S. tends to drive up the price of U.S. assets – exactly the opposite of what would be expected for other countries.

The reason is that the U.S. is such a dominant engine for the world economy – driving China’s exports for example – that bad news for the U.S. becomes very bad news for the rest of the world. (Look at Asian business newspapers: market fluctuations are often connected directly to U.S. domestic decisions.)

Thus, it can be argued that U.S. bonds hold their value not despite a credit downgrade, but because the worrisome downgrade leads investors to seek safety!

I touched on this in post 94 talking about flight to quality and that is a perfectly valid point but it’s irrelevant if there is no global crisis which is forcing a flight to quality.

[Measure_for_Measure]

I google. Last year, Moody’s recommended eliminating the debt ceiling. Back in the real world, fiscal policy and the default ceiling are the largest factors restraining the economy. But McConnell and Boehner have figured out that a strong economy helps the party in the Oval Office, and they have proved themselves perfectly amenable to economic sabotage.

One budget specialist has admitted that he doesn’t know how things will play out this fall. So that seems to be an answer to the OP.

Oh, and don’t call it a debt ceiling. Call it a default ceiling. Because that’s what modern American conservatives are pushing.

And on a personal note…

deltasigma: I think you are experiencing a variant of the Peter Principle. Your raw skills and knowledge are above average for this board IMO, but you haven’t mastered your ignorance or rather the boundaries between what you know and what you don’t. I’m speaking as somebody on your side of the argument. There are layers of knowledge and while a BA in economics will get you pretty far policywise, there is such a thing as specialist and semi-specialist knowledge. You can’t belittle somebody who points out correctly that the bond market didn’t give a damn when S&P downgraded their credit. It makes you look like a clownish ignoramus. This wouldn’t be a problem except that you are punching below your weight class, to use a boxing metaphor.
ETA: …and apologies and sympathies for having this criticism lead the next page of the thread.

[deltasigma]

@Measure_for_Measure

I google. Last year, Moody’s recommended eliminating the debt ceiling. Back in the real world, fiscal policy and the default ceiling are the largest factors restraining the economy. But McConnell and Boehner have figured out that a strong economy helps the party in the Oval Office, and they have proved themselves perfectly amenable to economic sabotage.

One budget specialist has admitted that he doesn’t know how things will play out this fall. So that seems to be an answer to the OP.

Oh, and don’t call it a debt ceiling. Call it a default ceiling. Because that’s what modern American conservatives are pushing.

And on a personal note…

deltasigma: I think you are experiencing a variant of the Peter Principle. Your raw skills and knowledge are above average for this board IMO, but you haven’t mastered your ignorance or rather the boundaries between what you know and what you don’t. I’m speaking as somebody on your side of the argument. There are layers of knowledge and while a BA in economics will get you pretty far policywise, there is such a thing as specialist and semi-specialist knowledge. You can’t belittle somebody who points out correctly that the bond market didn’t give a damn when S&P downgraded their credit. It makes you look like a clownish ignoramus. This wouldn’t be a problem except that you are punching below your weight class, to use a boxing metaphor.
ETA: …and apologies and sympathies for having this criticism lead the next page of the thread.

Aww, you want to help me and you’re on my side. That’s just so . . . so . . . touching . . . I might cry.

The problem is that you obviously haven’t followed the thread and have no idea to what extent everything you mention has already been beaten to death.

I understand that some of you pathetic little rodents want to keep this thread alive for your own amusement and I’m willing to continue to entertain you if you can bring something original and interesting to the table. What I won’t do is rehash the same shit over and over just because you’re too fucking lazy to READ THE THREAD. Ahahahah!

[Steve_MB]

@Martin_Hyde

So let’s clarify, you want Congressional approval for every bond auction, or you want Presidential unlimited power to take out debt for the country? Or do you propose something else, if so, what?

I propose acknowledgment of reality (i.e. when Congress approves $X spending and $Y revenue, X being greater than Y, it has inherently approved the taking on of $X-Y debt).

[Trinopus]

@deltasigma

Aww, you want to help me and you’re on my side. That’s just so . . . so . . . touching . . . I might cry. . . .

You might try reasoning, instead. Seriously. You’re being incredibly rude; you’ve posted some of the vilest shit the Pit has ever seen. But you aren’t convincing anyone.

Bring facts. Explain them clearly. Leave the insults behind. Make your education work for you. Grow up and conduct your business like an adult.

(Now taking odds of five-to-seventeen against…)

[deltasigma]

@Trinopus

. . . you’ve posted some of the vilest shit the Pit has ever seen.

I wasn’t going to bother responding except for this. I would take a bow since under other circumstances I might consider this high praise. Unfortunately it’s hard for me to look it that way when I haven’t really made much of an effort.

[septimus]

@Trinopus

You might try reasoning, instead. Seriously. You’re being incredibly rude; you’ve posted some of the vilest shit the Pit has ever seen. But you aren’t convincing anyone.

Bring facts. Explain them clearly. Leave the insults behind. Make your education work for you. Grow up and conduct your business like an adult.

I second these suggestions. You’re obviously intelligent. Your views on finance are often more valid than those of your critics. You could be a useful contributer at SDMB.

You took a confused and very incorrect position about dividend-reinvestment a few months ago. That’s forgivable! I’ve posted when confused before. (Usually due to inadequate caffeine; I only wish the confusion were caused by a dozen starlets caressing my body and reducing my brain to jelly. )

But when you were corrected in that thread by Hellestal and myself, you lashed out with insults. :dubious: The thread immediately died: we all walked away, as though someone had left a turd and been too embarrassed to apologize. But I had to point it out when you claimed above to be error-free.

No, I’m not looking for a “cite” to “disprove” your dividend-reinvestment ignorance. It’s obvious to anyone with common-sense, and I’m almost sure it would be obvious to you if you reflected on the question.

Yet you stubbornly lash out and lash out and lash out. Why? There are morons on the board who behave similarly and we just laugh at them. But I still think you are relatively intelligent. Your behavior in this thread is quite confusing.

[deltasigma]

@septimus

I second these suggestions. You’re obviously intelligent. Your views on finance are often more valid than those of your critics. You could be a useful contributer at SDMB.

You took a confused and very incorrect position about dividend-reinvestment a few months ago. That’s forgivable! I’ve posted when confused before. (Usually due to inadequate caffeine; I only wish the confusion were caused by a dozen starlets caressing my body and reducing my brain to jelly. )

But when you were corrected in that thread by Hellestal and myself, you lashed out with insults. :dubious: The thread immediately died: we all walked away, as though someone had left a turd and been too embarrassed to apologize. But I had to point it out when you claimed above to be error-free.

No, I’m not looking for a “cite” to “disprove” your dividend-reinvestment ignorance. It’s obvious to anyone with common-sense, and I’m almost sure it would be obvious to you if you reflected on the question.

Yet you stubbornly lash out and lash out and lash out. Why? There are morons on the board who behave similarly and we just laugh at them. But I still think you are relatively intelligent. Your behavior in this thread is quite confusing.

So. You want the kinder, gentler approach eh? Guess you’re not familiar that old saw about sowing and reaping. But hey, I STILL think you’re intelligent.

Oh god. Hang on. My eyes got a little stuck that time - what with rolling back farther than what I’m usually prepared for upon entering this thread.

Normally I’d tell you to fuck yourself after that little piece of unapologetic patronizing, but hey - kinder and gentler, kinder and gentler . . . but just you know - I WILL stop when my the finger nails of my (imaginary) clenched fist hit bone. M’kay?

Regardless. Since I’m hopeful this thread is winding down and I expect you NOT to use this as an excuse to perpetuate it, I’ll see what I can say regarding these 2 bogus issues you keep raising and for which you refuse to be especially specific let alone provide cites, even to the SDMB threads. And no, I’m not doing it either. You raise the issue, you make the case. If you’re unwilling or unable, don’t act like it’s somehow my problem. I mean seriously, does that ever work?

As to the MBS thread, your problem there is that it didn’t become clear until late in the thread what the relevant issues were. If you work backwards and make at least some attempt to be objective, you should be able to see that. It’s certainly possible I contributed to the confusion though. I tend to assume a lot of things go without saying. Sometimes I’m not considering how other people are going read what I’m saying and/or assume they can read my mind (figurative speaking obviously). Other times I try to make things generally accessible and do a shitty job. Other times I tend to read the point I think the other person is trying to make rather than what they’ve actually said. Who knows - maybe some combination of the above, or none of the above. W/o looking though and based on what I do recall, I’m pretty sure I probably covered a good chunk of the problem.

But BTW, most of the time, even when I’m careful and do a pretty good job of explaining things, for whatever reason people just seem to have an aversion to actually reading what I type. Either that or I’m using a lot of words as having much narrower connotations than what most people are accustomed to - which is also a possibility since I’m accustomed to using a whole host of ‘terms of art.’

On the issue of bond returns however, given the specific context of that thread, something I emphasized more than once IIRC, you were completely wrong and I will stand by that any day in any universe so whenever you want, feel free to post your defense of that idea in that thread and I’ll be happy to STFU. If everyone else really is stupid enough to agree with your ahem ‘logic’, then they deserve your advice.

[Trinopus]

@septimus

. . . Yet you stubbornly lash out and lash out and lash out. Why? There are morons on the board who behave similarly and we just laugh at them. But I still think you are relatively intelligent. Your behavior in this thread is quite confusing.

This. What I’d really like is someone to point out, as simply as possible (this being economics, that may be an awful lot to ask) whether the 2011 credit rating downgrade really did cost us money. Was credit harder to get? Did we have to pay more in interest? Did Congress, by playing brinksmanship with default, do measurable harm to us (We the People) or did the lending market largely ignore it and continue to lend at roughly the same rates and same costs?

Name-calling has no place in a discussion like this. It ought to be (?) a relatively simple (?) classroom exercise. I know I can’t answer it, but, as far as I can tell, this thread hasn’t actually answered it directly.

(If an earlier post did answer it, I apologize. It’s been a hard thread to follow.)

Since this is the Pit, piss on Ronald Reagan. Y’know, just because.

[deltasigma]

Not all damage is immediately quantifiable. If you can’t posit that simple fact, then you’ve already assumed your conclusion and there’s no hope of a discussion.

[Measure_for_Measure]

@Trinopus

This. What I’d really like is someone to point out, as simply as possible (this being economics, that may be an awful lot to ask) whether the 2011 credit rating downgrade really did cost us money. Was credit harder to get? Did we have to pay more in interest? Did Congress, by playing brinksmanship with default, do measurable harm to us (We the People) or did the lending market largely ignore it and continue to lend at roughly the same rates and same costs?

Name-calling has no place in a discussion like this. It ought to be (?) a relatively simple (?) classroom exercise.

It’s not a simple exercise: it involves both complex and possibly simple statistics. (Simple statistics provide a transparent answer, but don’t address all other possible explanations. Complexity rules some of those out, though it limits the debate to specialists). I have in mind some sort of study of various sovereign downgrades and upgrades.

Opinions are another matter. Jeremy Siegel gave his off the cuff views:

Following the downgrade of the U.S. credit rating from “AAA” to “AA+” – labeled an historic move by some – the markets rushed in to buy up U.S. Treasuries.

That is pretty much the opposite effect one might expect. Standard economic logic suggests that a debt rating downgrade should lead to a selloff of that country’s debt instruments, not a flourish of purchases. …

What is driving the stock market down is fear of a double dip recession, and legitimate worries about sovereign debt and a banking crisis in Europe, says Wharton finance professor Jeremy Siegel. For now, at least, the European Central Bank (ECB) has shown that it will provide the liquidity needed to avert an immediate crisis there.

The S&P downgrade, meantime, “is completely unjustified,” Siegel says. “There is no chance whatever of a default by the federal government. Ask yourself a question. The federal government bailed out AIG. Is the federal government not going to bail out the federal government?”

So, in Siegel’s view, the market is predicting a recession “though none of the professional forecasters I look at are predicting a recession. It’s considered a very low probability event.” This morning’s market swoon continues the big fade recorded last week when some, mostly poor, economic numbers caused more investors to focus on the possibility of another economic dip. Given the public re-emergence of sovereign debt issues in Europe, those concerns extend to the possibility of a global recession.

The credit downgrading became an excuse “for the bears to pile on,” Siegel added.

The less famous Richard J. Herring explains the odd behavior as follows:

U.S. Treasury bonds have been higher since the downgrade. The price of 10-year Treasuries has climbed and yields on the bonds, which fall when prices rise, hit near-record lows before gaining a bit on Thursday. Treasury debt “still looks good relative to other assets,” says Herring. None of the remaining countries with AAA ratings “have a sufficient quantity of debt outstanding to provide an adequate substitute for large holders of dollars.”