Friday, January 14, 2011

Differential News Coverage

At a bond conference in Paris yesterday, the two premier bond rating agencies warned the U.K., Germany, and France that their AAA credit ratings was in danger. They also clearly warned that U.S. bonds faced the same danger. Why was it big news in Europe but not in the U.S.?

As the world's only reserve currency, that is a huge deal! One analyst from S&P said "the view of markets is that the U.S. will continue to benefit from the exorbitant privilege linked to the U.S. Dollar, but that may change."

If the dollar gets downgraded, the value of outstanding bonds will drop and the cost of future interest paid by taxpayers will sky-rocket. It must not happen!

Because bond analysts are not Supply-side believers, every tax cut threatens our credit rating. The bond analysts want to see us take the "Illinois-approach," which means big tax increases. If we don't make the bond analysts happy, we will certainly make the bond vigilantes happy!

Walking such a fine line between too much and too little certainly is exhausting . . .