Monday, August 8, 2011

Journamalism: Downgrade Commentariat Edition

Just a quick review for everyone: Over the weekend, Standard & Poor's downgraded the debt rating of the federal government of the United States. Their downgrade signaled that S&P felt US government debt was no longer as safe an investment as it once was, and that a default is now more likely than it's ever been (not that S&P is saying the probability of default is large... perhaps they thinks it's only 1%, but, in their opinion, it has definitely risen).

Now then, if S&P were right, and the probably of a US default on its debt has increased, and if worldwide financial markets were attuned to S&P and believed in S&P's astute analysis, what would you expect? Investors would sell their US treasury holdings, right? And if investors sold their US treasury holdings, then the interest rates on US treasuries would rise. All of this is really obvious, right? I mean, this isn't that difficult to understand, is it?

But what happened in the financial markets today? Well, apparently investors were so terrified of US government debt (with its shiny, new increased probability of default) that they resorted to buying more US government debt than ever before. As a result, these terrified-of-US-debt investors pushed the government's 10-year bond rates down to 2.31% (from 2.47% where it closed on Friday before the downgrade).

So clearly, S&P's downgrade was not a factor in any investor decisions made today. Clearly, S&P's downgrade meant absolutely nothing to anybody. Clearly, this was a resounding statement by the market that S&P's downgrade was meaningless. Clearly, this was a statement by the market that it doesn't care anywhere near as much about the federal government's fiscal problems or its debt levels or rating as much as the commentariat has proclaimed. Clearly the market doesn't give a fig about the US getting its fiscal house in order in the short- or even medium-term. Clearly, the market is much more concerned about an economy still struggling to get off life support with no sign of government aid coming to fix the economy's fundamental weakness on the horizon.

But the markets tanked today and I don't think I saw a single journalist make an honest or correct statement about it. The only honest, and correct, statement on what happened in financial markets today is that the debt ceiling fiasco was exactly that... a Tea Party-manufactured fiasco -- and sideshow -- that didn't matter one fig to the markets or the economy, and the S&P's downgrade as a result, was as much a fiasco.

The only honest, and correct, statement to make about financial market selloff today was that markets tanked due to fears that the economy (which is shriveling from the drawdown of federal government support) and its prospects look increasingly weak. The only honest, and correct, statement is that financial markets tanked today because the economy needs stimulative government aid, not contractionary budget deals. The only honest, and correct, statement is that the President has sided with the Tea Partiers in believing that contractionary government measures will actually be expansionary and markets were rightly terrified, so they sold stocks and retreated into government bonds because the economy isn't likely to get help from the government in the form of another round of fiscal stimulus, QE III, better mortgage modification programs or debt relief programs. Therefore, the only honest, and correct, statement to make is that the debt ceiling and the government's fiscal problems were a pointless sideshow and a blockade that has succeeded in preventing the federal government from aiding the economy.

But that's not what anyone said today. Instead we got Journamalism -- and there were so many incidents to choose from, so here are just a few from some of the bigger names:
U.S. stocks tumbled... amid concern that a downgrade of the nation's credit rating by Standard & Poor's may worsen an economic slowdown.
President Barack Obama's first public comment about Standard & Poor's downgrade of U.S. debt... was not enough to stop a market plunge... with investors uncertain if Washington can overcome political gridlock.
The Guardian (this one is nonsensical beyond description):
Despite the Wall Street selloff, prompted by the ratings downgrade, investors piled into US treasury bonds.
Investor's Business Daily:
U.S. downgrade slams markets... stock markets were rocked Monday by Standard & Poor's downgrade of the U.S.
Wall Street Journal:
S&P's decision to downgrade US triggers corporate bond selloff.

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