Monday, August 08, 2011

Our Economist™ versus others

Interesting little wire crossing in Brazil as Harper meets the Brazilian President:
At a signing ceremony with Harper for several modest bilateral deals, Brazilian President Dilma Rousseff criticized the credit-rating agency for an "incorrect assessment."

"We do not agree with the rushed evaluation, a little bit too quick evaluation, and I would even say incorrect assessment made by Standard & Poor's which reduced the credit rating of the United States."

The Prime Minister's Office later clarified that Rousseff was speaking on behalf of Brazil, not Canada.
The implication of that clarification could be that Canada is with Standard & Poor's.

The Standard & Poor's decision to lower the U.S. rating has been pilloried by many including a former Managing Director of Moody's Sovereign Ratings and Krugman:
Let’s start with S.& P.’s lack of credibility. If there’s a single word that best describes the rating agency’s decision to downgrade America, it’s chutzpah — traditionally defined by the example of the young man who kills his parents, then pleads for mercy because he’s an orphan.

America’s large budget deficit is, after all, primarily the result of the economic slump that followed the 2008 financial crisis. And S.& P., along with its sister rating agencies, played a major role in causing that crisis, by giving AAA ratings to mortgage-backed assets that have since turned into toxic waste.

Nor did the bad judgment stop there. Notoriously, S.& P. gave Lehman Brothers, whose collapse triggered a global panic, an A rating right up to the month of its demise. And how did the rating agency react after this A-rated firm went bankrupt? By issuing a report denying that it had done anything wrong.

So these people are now pronouncing on the creditworthiness of the United States of America?

Wait, it gets better. Before downgrading U.S. debt, S.& P. sent a preliminary draft of its press release to the U.S. Treasury. Officials there quickly spotted a $2 trillion error in S.& P.’s calculations. And the error was the kind of thing any budget expert should have gotten right. After discussion, S.& P. conceded that it was wrong — and downgraded America anyway, after removing some of the economic analysis from its report.

As I’ll explain in a minute, such budget estimates shouldn’t be given much weight in any case. But the episode hardly inspires confidence in S.& P.’s judgment.
Given what we've seen on the markets today, I'm not sure what Harper has in mind by emphasizing the distinction between Brazil's critical position on the S&P rating and our own. In another report, there's more on his reaction:
Later, appearing at his own news conference, Harper declined to say if he agrees with the criticism, saying it would be inappropriate to comment on the decisions of the credit-rating agency on another country.

However, Harper did say the agency had issued an assessment of Canada's fiscal position that was "extremely positive."

"I think that does indicate we are on the right track. We are gradually reducing our deficit. We've got a low debt level but we're gradually reducing a deficit in a way that is encouraging the Canadian economy to continue to create jobs."
I'm no economist but wouldn't it be preferable to be talking up the economic strengths of your leading trading partner whose economic fortunes are so crucial to our own? At least something more than what he's done here.