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Bellows attacks S&P credibility over US downgrade

Standard and Poor’s committed a “basic math error of significant consequence” when it decided to downgrade the US last week, according to John Bellows, the US Treasury’s acting assistant secretary for economic policy.

On Friday afternoon, the ratings agency cut the country’s long-term sovereign credit rating from AAA to AA+ over concerns that its fiscal consolidation plan will fail to stabilise the government’s medium-term debt dynamics.

However, Treasury Notes blog post written by Bellows says S&P’s decision was originally based on a £1.22 trillion “mistake” which it later downplayed in its rationale.
Bellows claims the organisation took figures from the US Congressional Budget Office and applied them to the wrong baseline – which led S&P to “dramatically overstate projected deficits by $2 trillion over 10 years”.

He also says the Treasury was given a copy of S&P’s report before the downgrade was made public and alerted it to the error, but claims the agency adjusted its primary reason for the downgrade from economic to political reasons to reduce the importance of this mistake.

“Independent of this error, there is no justifiable rationale for downgrading the debt of the United States,” Bellows writes.

“There are millions of investors around the globe that trade Treasury securities. They assess our creditworthiness every minute of every day and their collective judgment is that the US has the means and political will to make good on its obligations.”

He adds that S&P’s mis-calculation and its decision to change the rationale for the downgrade “raise fundamental questions about the credibility and integrity” of the agency.

However, S&P says its analysis of the US’s credit rating was objective, while conceding that some of its assumptions were being disputed by the Treasury.

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  1. John Szymanowski 8th August 2011 at 1:11 pm

    How predictable from the US Treasury dept.
    Bellows’s argument is a bit like saying the Titanic sunk because it had too few lifeboats and not because it hit an iceberg.
    The iceberg here was the US political inability to sort the problem out in good time.
    S&P were merely stating the obvious.

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