Credit Rating Agency That Rated Subprime MBS Investment Grade Downgrades U.S.

This would have been an appropriate heading for this article on S&P’s decision to downgrade U.S. government debt.  S&P gave investment grade rating to hundreds of billions of dollars of mortgage-backed securities.  They received tens of millions of dollars from the investment banks for these ratings.

It would have also been worth asking what S&P thinks it means by this downgrade.  U.S. government debt is payable in dollars.  The U.S. government issues dollars.  What does it mean that S&P thinks that at some point the government will not have the dollars needed to pay interest and principal and its outstanding debt?  Does S&P think the U.S. government will forget how to print dollars?

If that is not what the downgrade means, then it would be helpful to explain what it does mean.  Readers of this article would likely be confused since there is no obvious meaning that could be attached to this downgrade.

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C.  He is the author of several books, including False Profits: Recovering from the Bubble Economy.  This article was first published in CEPR’s Beat the Press blog on 6 August 2011 under a Creative Commons license.

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