Treasury Secretary Geithner, Warren Buffett, and Credit Rating Agencies All Wrong About US Debt

Treasury Secretary Geithner, Warren Buffett, and Credit Rating Agencies All Wrong About US Debt

The recent stock market sell off has been blamed on the credit rating downgrade of US Debt by S&P. WTF Finance warned its readers in March about the possibility of a stock market sell off. Treasury Secretary Geithner who previously claimed to be for a strong US Dollar policy while simultaneously suggesting costly market interference policies dismissed a potential credit rating downgrade in April.

In a CNBC interview, Treasury Secretary Geithner called the credit rating downgrade by S&P irresponsible:

“I think S&P has shown really terrible judgment and they’ve handled themselves very poorly. And they’ve shown a stunning lack of knowledge about basic U.S. fiscal budget math. And I think they drew exactly the wrong conclusion from this budget agreement.

They, like many people, looked at this terrible debate we’ve had over the past few months, should the U.S. default or not, really a remarkable thing for a country like the United States. And that was very damaging. And I think it left people to wonder whether this political system was going to be up to the challenges facing the country. It caused a lot of damage and that’s going to take a long time to heal that damage.”

Stock market cheeleader Warren Buffett also made a public statement calling the credit rating downgrade of US debt by the S&P irresponsible and to Fox news, Buffett stated that he would upgrade US debt instead.

“I don’t get it. It doesn’t make sense. In Omaha, the U.S. is still Triple-A rated and if there were a Quadruple-A I’d give the U.S. that.”

S&P wrong about downgrade

Here’s why the S&P downgrade to AA+ is wrong and why both Geithner and Buffett are out of touch with reality. Without the continuous deficit spending the United States would have defaulted a long time ago on its debt obligations. Both parties are clearly unwilling to balance the budget as both parties rely on deficit spending and their best budget proposal still depends on increasing the National Debt by trillions of dollars. The fact that S&P still rates US Debt AA+ illustrates how this rating agency is incapable of assessing risk. Not surprisingly given that they failed to understand and forecast the implosion of the Real Estate market and the collapse of Mortgage Backed Securities (MBS). Fact remains that the United States is unwilling to live within its means, has trillions of future obligations, continuous to rely on credit expansion to finance its operations, and relies on the Federal Reserve System to actively participate in Treasury Auctions through its bond purchase program in order to create artificial demand for those securities. That’s hardly A rating worthy and Treasury Secretary Geithner, Warren Buffett, and S&P all are delusional in their risk assessment of US Debt.

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This post was written by:

Leonardo Abaci - who has written 13 posts on WTF Finance.

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