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S&P: $2 Trillion ‘Math Error’ Not The Problem

From Bloomberg:

Dispute Over ‘Basic Math’ Began With S&P E-Mail

By Ian Katz – Aug 7, 2011

The e-mail message that unleashed hours of debate between U.S. Treasury Department officials and Standard & Poor’s arrived at 1:45 p.m. on Aug. 5, just as U.S. and European stock markets were limping toward the end of their worst week since 2008.

Something didn’t look right to John Bellows, the Treasury’s acting assistant secretary for economic policy. He found what he later called a $2 trillion “basic math error” in the e-mail, a preliminary press release announcing S&P’s first-ever downgrade of U.S. creditworthiness.

Over the next 5 1/2 hours, the two sides argued over issues ranging from so-called baseline calculations to deficits, according to a person familiar with the matter. In the end, the ratings firm stuck with its decision, citing the level of government debt and the contentious political climate in Washington.

Elsewhere, it is reported that the Obama administration has called the move by S&P "a hasty decision based on faulty math." Which sounds to us like a perfect description of the recently passed bipartisan "budget compromise."

Besides, given that S&P, along with the other credit ratings agencies and China and even the IMF have called for more than a $10 trillion dollars in debt reductions over the next years, $2 trillion dollars either way is obviously just pocket lint. It would not have any real bearing on S&P’s rating. And it turns out it didn’t.

This is just the Obama administration and their lickspittle minions in the news media trying to muddy the waters. Just as they always do with bad news.

The debate in Congress over raising the debt limit “highlighted a degree of uncertainty around the political policymaking process which we think is incompatible with a AAA rating,” David Beers, S&P’s managing director of sovereign ratings, said later on a conference call with reporters.

That judgment raised “fundamental questions about the credibility and integrity of S&P’s ratings action,” Bellows wrote in a Treasury blog post yesterday. “Independent of this error, there is no justifiable rationale for downgrading the debt of the United States.”

Mind you, this is a US Treasury flack complaining about someone else’s "credibility and integrity."

The dispute stems from how New York-based S&P, a unit of The McGraw-Hill Companies, Inc., used figures from the Congressional Budget Office.

Oh, the CBO. Yes, we all know that their numbers are always gospel. And they can never be questioned.

The discrepancy didn’t change the downgrade decision, S&P said, because Treasury’s $2 trillion figure was derived by calculating government debt over a 10-year period while S&P’s ratings are determined using a three- to five-year time horizon

Nitpickers.

“The primary focus remained on the current level of debt, the trajectory of debt as a share of the economy, and the lack of apparent willingness of elected officials as a group to deal with the U.S. medium-term fiscal outlook,” S&P said. “None of these key factors was meaningfully affected by the assumption revisions to the assumed growth of discretionary outlays and thus had no impact on the rating decision.” …

There it is.

In his blog posting yesterday, [US Treasury official] Bellows said the error occurred because S&P took CBO numbers and applied them to the wrong starting point, or baseline.

“The impact of this mistake was to dramatically overstate projected deficits — by $2 trillion over 10 years,” he said.

Have you noticed how often the Obama administration uses this tactic? They used the same ploy to try to discredit Mr. Boehner’s debt ceiling deal. They do it all the time.

[John Chambers, the chairman of S&P’s sovereign ratings committee] told CNN television Aug. 5 that S&P accepted the Treasury’s view on the baseline “and our figures that we have published reflect that.”

“The important thing to say in this is that the amounts that we’re talking about, say up to about 2015, you’re talking about 1.5 percent of GDP of difference in your debt,” Chambers said. “It doesn’t make a material difference” because it doesn’t change the fact that the U.S. debt-to-gross domestic product ratio will probably continue to rise in the next decade, he said.

Note how this detail is buried at the very bottom of the article.

This article was posted by Steve on Monday, August 8th, 2011. Comments are currently closed.

6 Responses to “S&P: $2 Trillion ‘Math Error’ Not The Problem”

  1. untrainable says:

    In the socialist universe we now seem to live in, the laws of physics and therefore math don’t operate the same way. Tax cuts = government spending. Minute reductions in growth rates = draconian cuts on old folks. Growing unfunded government spending by an order of magnitude = Reganomics. Sharing the burden = Raping the rich. Redistribution of wealth = “fairness”. Fiscal responsibility = terrorism. Living within your means = an unattainable goal.

    For anyone to suggest that fiscal responsibility (living on less than you make) is an unattainable goal proves that we’re not in Kansas anymore. I wish I could click my heels together 3 times, but my Ruby tennis shoes were reposessed in the name of social justice rght after Auntie M’s Obamacare physician told her to take the pill and sleeeeeep, sleeeeeep… FOREVER. Then he ate Toto with some fava beans and a fine Chianti.

  2. proreason says:

    Who believes for an instant that the debt will be as low as any of the governments pie-in-the-sky estimates anyway.

    The odds that it will be higher range from 99% to 100%

    • tranquil.night says:

      Absolutely, for starters all of those projections are based off rosy growth numbers from this non-existent “recovery” as opposed to reality of a rapidly declining/depressing nation. Then there’s all the accounting gimmickry of our imminently upcoming entitlement surge. ObamaCare, already misrepresented in its total costs, will facemelt what’s left if/when it becomes the fully operational Death Star it’s slated to be by 2013.

      The truth of the matter is that the ratings agencies were trying to carry the water for the regime as long as they could, but it’s simply ridiculous to think the Federal government deserves a AAA rating when Texas has been running balanced budgets for a decade, has money in their rainy day fund, and accounts for most of the country’s job growth – and they’re still rated AA+

  3. Right of the People says:

    I make mistakes like that all the time in my checkbook. A trillion here, a trillion there what’s the big deal? I started on the wrong line, yeah that’s it the wrong baseline. Hey, I’ve still got plenty of checks, how can I be out of money?

  4. Perdido says:

    Interesting that this same crew was perfectly fine when S&P had Fannie and Freddie with AAA ratings. When S&P was hinting that no downgrade would be forthcoming the Right was saying S&P couldn’t be trusted because they didn’t downgrade Fannie and Freddie. These rating agencies are farcical at best. The markets will tell what the trustworthiness of US Govt credit is and the true value of the Federal Reserve Note.

    Fact is, all the ratings agencies should have the US debt as junk. It is.

    The Federal Reserve Note is going to lose better than 95% of it’s value before we can get a conservative government in place. It won’t matter what the interest rate paid will be. Romer was right. We’re effed.

  5. Reality Bytes says:

    He’s Got – He’s Got – Paulie Krugman Eyes!

    Would you buy a car from this guy? Come to think of it, would you even let him drive?


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