Driving into the office this morning, listening to the BBC News Hour broadcast, a high muckity-muck for PIMCO was being interviewed in his expert capacity by the BBC correspondent about Standard & Poor's recent downgrade of the U.S. debt. The correspondent asked if S&P's actions weren't merely reflective of "what the markets have been telling us for some time now," and the muckity-muck began his response by saying, "Yes."
Uhhmmmm . . . .no. If "the markets" had been telling us for some time that it was getting riskier to hold U.S. debt then we would have seen interest rates on that debt rise. But we haven't seen that at all. In fact, after last week's massive stock sell-off all of that investment money was plowed into . . . U.S. debt, driving bond prices up and interest rates down even further. Despite everything, U.S. debt is still perceived by "the market" to be the safest of increasingly perilous harbors when it comes to docking up money.
Now, this might not be true. As S&P's report noted, the reason it decided to downgrade the U.S. debt is because a crazy group of Teabaggers have made it clear that they don't have any problem with having the U.S. default if they think defaulting gets them closer to their mythical Galt's Gulch utopia. And given the amazing number of veto points in our federal system, having a completely unhinged group of fanatics seize even a tiny portion of the federal government allows them to shut that system down. So while everyone understands that the U.S. is capable of paying its debts, S&P's downgrade reflects that the nutbaggers might simply be unwilling to pay those debts.
So, y'know . . . Standard & Poor's downgrade may in fact be the correct call. But it is a call that arises solely from political concerns, and not from any economic, fiscal or monetary concerns.
The BBC broadcast represent just another example of the inane kind of reporting that passes for "analysis" in the financial press: no matter what the facts, no matter what the circumstances, "the market" is always correct and perfectly predictive. And yet, here we have "the market" flooding into U.S. treasuries because "the market" believes them to be safe; Standard & Poor's is downgrading these same bonds because they are now considered risky. These positions are diametrically opposed.
Doesn't matter. Tune in and listen to any financial analyst and you will hear them unthinkingly and reflexively tell you that "the market" omnisciently and correctly predicts everything, absolutely everything -- including events like the S&P downgrade, which are in fact the opposite of what the market really did predict. Actual facts on the ground don't matter to these highly paid "analysts."
This isn't analysis, it is financial theology.