Moody’s Blues, Poor Standards, and the Debt, by Paul Krugman, in NY Times: The invaluable Mike Konczal tells us the truth about the rating agencies and public-sector debt: not only do they constantly make mistakes, they do so in a consistent direction. Namely, they hold public-sector borrowers to vastly higher standards than they hold private borrowers.
And who says this? The answer is, their own analysis.
It’s hard not to see this as essentially ideological: the rating agencies just treat governments as potential deadbeats, by definition.
Let me just top off Mike’s discussion with the last time the raters downgraded a major economy’s government. Here’s the 10-year bond rate in Japan:
See the downgrade? (It was in 2002).
The point is that when S&P or Moody’s speaks, that’s not the voice of “the market”. It’s just some guys with an agenda, and a very poor track record. And we have no idea how much effect their actions will have.