The $2 Trillion Mistake

As has been widely reported, S&P briefly reconsidered their plans to downgrade the credit rating of the United States after the treasury pointed out to them that they miscalculated the nation’s debt by over $2 trillion dollars.

It’s hard to imagine how an organization that could make such a colossal miscalculation could still have the authority to preside over the credit rating of even a hotdog stand, but it’s even more gobsmacking when you examine the details of the miscalculation.

Talking Points Memo has a brief rundown of how it happen.

CBO took into account our austere circumstances and concluded a more realistic growth measure over the next decade is inflation. Relative to that projected growth, which locks in discretionary spending cuts, and then institutes near-term caps, the debt deal saves $2.1 trillion. About $1 trillion of that comes from expected discretionary savings, and the rest will come from a Congressional deficit committee tasked with making up the difference, largely on the tax and entitlement side.

Enter S&P, which took CBO’s conclusion — $2.1 trillion — and, according to Treasury, applied it, uncorrected, to the completely different, aforementioned baseline, assuming spending typically grows with GDP. Of course, if in absence of the debt limit deal, Congress would have increased discretionary spending at such a high rate, then the deal itself would actually cut vastly more than $2.1 trillion.

S&P didn’t initially take that into account, didn’t recalculate the expected savings, lopped $2.1 trillion off the wrong projection, and thus overestimated growth in future deficits by about $2 trillion, and debt as a percentage of GDP by about 8 percent.

bigMistake

S&P did not account for the savings agreed to in the Budget Control Act which, among other things, raised the national debt ceiling. Savings which account for over $2 trillion dollars, or, roughly the same amount S&P miscalculated.

It boggles the mind.

After the treasury confronted S&P for the mistake, S&P altered their rationale for the downgrade from “too much debt” to “political dysfunction.” And while they may be correct about the dysfunction, it’s exceedingly difficult to take them seriously.

Print Friendly
This entry was posted in Economy and tagged , , , , . Bookmark the permalink.
  • muselet

    Here is a knowledgeable take-down of S&P Kevin Drum linked to this morning.

    –alopecia

    • http://www.politicalruminations.com/ nicole

      Haha….I really enjoyed reading that. Thanks, alopecia.

  • caribbeanobserver

    Why do we all seem surprised at the not so subtle sabotage mechanisms at work with this Prez. ‘They’ are working to bring him down. Stop being shocked!

    • dildenusa

      Who exactly are “they?” Sure, you have republican tea parties and corporatists. But, the worst is that we have liberals and progressives working to bring down President Obama. What are these left wing nuts thinking?

  • http://www.politicalruminations.com/ nicole

    Atrios:

    Apparently we’re supposed to care about what some idiots at some corrupt organization think about anything.

    Fuck the damn corrupt monster corporations.

  • JMAshby

    I don’t like to indulge in conspiracy theories but this one is really starting to stink.

    If nothing else, I think S&P is criminally inept.

    The Senate Banking Committee is investigating the downgrade now.

  • laddieluv

    How much do you suppose it cost the gopers/baggers/rethugs/wing nutz to “buy” S & P?

    And whoever thought it was a good idea to have an organization with the word “poor” in its name preside over ANYONE’s credit rating?

    Blech

  • dildenusa

    This is all just speculation on the part of S & P and Giethner. The clowns at S & P are clueless and shameless. The CBO and Giethner have more data available to base their speculation while S & P is guessing. What nonsense!