Everyone Should Learn Japanese, and the Debt, by Paul Krugman, in NY Times: OK, maybe not. But you really shouldn’t be commenting on current economic events unless you’ve studied the last time a major economy found itself up against the zero lower bound on interest rates. Those of us who had paid attention to Japan knew that large increases in the monetary base wouldn’t be inflationary and that large government borrowing wouldn’t drive up interest rates. Those who hadn’t got it completely wrong.
So when Dan Gross — generally a good guy on these things — wrote this, I was kind of shocked:
As for the credit ratings, again, don’t hold your breath. It would be an exceedingly bold move for S&P and Moody’s to downgrade the U.S. sovereign credit rating. And, generally, these firms only act on sovereign credits after the market has made them look like chumps by driving up interest rates. If there has been a time in history when S&P downgraded a sovereign credit that was borrowing for 10 years at 3 percent, I’m not aware of it. Despite their desire to get ahead of the curve, the ratings agencies won’t act until well after the market does.
Uh, Japan 2002. And that’s not an obscure example: it’s a key piece of evidence that the rating agencies (a) have an ideological agenda and (b) have no idea what they’re doing when it comes to sovereign debt.