Rating agencies may actually destroy the global economy again Moreover, the experiences of Japan and more recently Ireland show that once the economy slows as a result of fiscal consolidation, the credit agencies will issue another downgrade, this time citing economic weakness. Even worse, they will disavow any knowledge of the fact that it was the fiscal consolidation they themselves prescribed that sparked the downturn.
For that reason, we need to be extremely wary of actions taken by rating agencies that do not understand the concept of balance sheet recessions. As I noted in my 26 April report, the rating agencies are now poised to destroy the global economy once again. The first time, they exacerbated a massive bubble by assigning AAA* ratings to a raft of questionable subprime securities. This represented a complete abdication of duty for businesses originally intended to serve as an overseer of private-sector finance.
The housing bubble could never have grown as large as it did had the rating agencies not recklessly issued those AAA* ratings, and the balance sheet recession triggered by the bubble’s collapse would not have been nearly as severe. ==========================================================================================================================================================================================================================================
Exactly who are those at the credit rating agencies who wield as much power as they do who have so egregiously misguided us all with their AAA* ratings for the subprime mortgage boondoggle fiasco...... and why should we trust them now??
Elsewhere in the note he slams the ignorance of the Tea Party, and urges Obama to teach the nation about balance sheet recessions, a prospect to which we'd assign 0% odds, given that Obama himself thinks that we should reduce the deficit. ==========================================================================================================================================================================================================================================
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I was hanging on to every last word of this guy until he ruined it by slamming the ignorance of the Tea Party.
This writer should try and remember WHO it was that has, and continues, to ruin our economy. It certainly was not, and is not, the ratings agencies. They have done some bad calls, but they are not the CORE of the problem.
Say it ain't so, Joe!
Like trying to blame your speeding tickets your automobile insurance company.
Joe Weaselthorn is an idiot. He’s the same one who said about a year and a half ago that debt and deficit spending does not matter.
And, yeah, Joey Boy, it’s those eeeeviiilll ratings agencies that cause the economic turmoil. It has nothing to do with socialist banking (central banking) and the socialists who use those central banks in their borrow-and-spend schemes, isn’t it?
Huge federal deficits and debt. Housing bubble underwritten by Fannie Mae and Freddie Mac with banks participating at federal gunpoint. But it's the rating agencies who are the culprits, not the criminal class inside the Beltway who do all the taxing, spending and regulating. Right.
Japan went on a borrowed money spending binge shooting well past 100% of GDP to “stimulate” their economy and it didn't work. And now they're left with a stagnant economy and massive debt. The worst of both worlds. I also like how these people scream about the rating agencies failing to do their job by not downgrading the mortgage bubble earlier while at the same time complaining about them doing their job on US government debt... They want it both ways... Oh yah, they're lefties... Hypocrisy is thou name...
Yes it is all S&P’s fault for yelling “the emperor has no clothes”. If only we could go on blindly to our destruction we could all be happy! /sarc
Fiscal stimulus will reduce budget deficit in balance sheet recession
Here it comes. The Keynesian left is pushing for more government spending to solve the US problems.
The example of Japan is a very poor example for Koo to prove his point. Japan had a severe monitary and fiscal problem. It never really resolved the fiscal problem, and in fact is still struggling with its symptoms today. Japan tanked not because they had the wrong stimulus, but because they never addressed the fiscal and regulatory policies that led to their crisis. He draws the wrong conclusion from his data.
Having said that, we are in a similar situation. More stimulous will be disasterous. We need to fix the fiscal and regulatory issues that got us here in the first place, not apply more fiscal stimulous.
You quote Wheeze’n’fall like a true disciple.
IB4TZ
I sent the link to this article to my daughter, who is familiar with Koo’s work, because she’s doing her Senior Thesis in Economics, on Japan’s Lost Decade.
It was this same failure to pay attention to the borrower’s credit rating that was a factor causing the collapse of the mortgage industry. Are we going to repeat this colossal failure on a world scale?
Government employees and pensioners want more of that free money from debt, and they’ll steal the bond investors and everyone else blind to get it. S&P didn’t downgrade early enough or enough.