It appears the smart guys ain’t so smart. As the anniversary of Standard & Poor’s downgrade of the U.S. government’s credit rating nears, predictions last August of an unprecedented financial crisis accompanied by fire and brimstone to have been wrong.
Bloomberg helpfully takes a look back at who said what, and red faces and uncomfortable coughs abound.
The news service begins with Republican presidential candidate Mitt Romney, who described it as a “meltdown” reminiscent of the economic crises of Jimmy Carter’s presidency. He warned of higher long-term interest rates and damage to foreign investors’ confidence in the U.S.
“U.S. House Budget Committee Chairman Paul Ryan said the government’s loss of its AAA rating would raise the cost of mortgages and car loans,” Bloomberg reports. “Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said over time the standing of the dollar and U.S. financial markets would erode and credit costs rise ‘for virtually all American borrowers.’”
As it happens, almost a year later, mortgage rates have dropped to record lows, the government’s borrowing costs have eased, the dollar and the benchmark S&P stock index are up, and global investors’ enthusiasm for Treasury debt has strengthened, the news service notes.
“The U.S. Treasury is still the widest, deepest and most actively traded in the world,” Jeffrey Caughron, a partner at Baker Group LP in Oklahoma City, told Bloomberg. “That becomes all the more important when you have signs of weakening global economic growth and continued problems in Europe.”