Thursday, July 28, 2011

Is The S&P Behaving Like Murdoch?

link here to article

This article reports that S&P is disclosing its rationale for rating US treasuries to bond investors. If they are doing this it is against the Dodd/Frank law. The real problem, however, is that they intend to downgrade US debt unless it gets its debt to GDP ratio to a specific level by a specific time. That would require US debt to fall by $4 trillion over that period, and GDP must grow at 3% in order for that to happen. It is unlikely that GDP can grow at 3% while government is cutting spending by the required amount. The problem in the US is not debt. The problem is that US business has stopped investing in the US economy. Business investment has grown slower that GDP which implies that business is divesting in the US economy.

This article compares S&P to Murdoch on the grounds that both have been able to influence government behavior by using their particular powers.

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