Sunday, February 7, 2010

Geithner's Kiss of Death for America's Credit Rating

The title of a WSJ article today says it all: Geithner: U.S. Won't Lose Triple-A Bond Rating.

Treasury Secretary Timothy Geithner said Sunday that the U.S. wasn't in danger of losing its triple-A bond rating, in the wake of a warning from Moody's Investors Services about U.S. treasury-bond rating.

"Absolutely not," Mr. Geithner said in an interview with ABC News's "This Week" when asked about the prospect of the U.S. losing its top rating. "That will never happen to this country."

Bond rating agency Moody's on Wednesday warned that the triple-A rating of U.S. treasury bonds could be in peril unless the U.S. reduces its federal budget deficit or the economy rebounds.

We can ignore a quibble about what Moody's said or meant. Yes, the economy can rebound and the deficit can shrink, and Moody's can still be forced to lower its rating; it's a matter of degree.

The important point is that the need for the Treasury Secretary to come on national TV and deny that Moody's is wrong is strong evidence, if not absolute proof, that Moody's is of course correct. Just a few years ago, Moody's would never have said what it said, and if some lesser light of a rating agency said the same thing, some lower-level functionary than Mr. Geithner might have been allowed to be quoted disparaging the entire issue as ludicrous and not worth commenting on. Soon enough, the President will be the denier-in-chief, it would seem.

When Jimmy Carter was president, the U. S. issued "Carter bonds" that were not denominated in dollars. If that happens again, then the final argument for AAA status--that the U. S. can always pay its debts in depreciated dollars-- will go away.

"We're double-A Hey" may just be a new American slogan.

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