Treasury Secretary Timothy Geithner was on “This Week” on Sunday and made various comments. Here is the link:
I could make a lot of comments regarding this interview.
However, I would like to focus on this one exchange:
TAPPER: The Congress just voted to raise the debt ceiling to more than $14 trillion dollars. Moody’s, the bond rater, just said, quote, “unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture for the next decade will at some point put pressure on the triple-A government bond rating.
Is the United States going to lose its triple-A government bond rating? And what happens when the credit markets are no longer willing to buy U.S. debt?
GEITHNER: Absolutely not. And that will never happen to this country. And again, if you step back and look at what has happened throughout this crisis, when people were most worried about the stability of the world, they still found safety in Treasuries and the dollar. You’re still seeing that every time. People are reminded again about the many challenges you see around the world.
First, I don’t think any country can ever flatly deny the possibility of a credit downgrade. As well, as I have previously commented, sovereign deficit and debt levels are coming under increased scrutiny.
Second, as far as the U.S. Dollar and Treasuries purportedly acting as “safe havens” during the crisis, and the inferences Geithner draws from this :
Although the U.S. Dollar and Treasuries increased in price during the height of the financial tumult, I don’t agree with the idea that this price increase can be viewed as an (implied) affirmation of our financial standing. Many different factors played into the price increases of the U.S. Dollar and U.S. Treasuries during that period. As such, I do not come to the same conclusion as does Treasury Secretary Geithner.
As well, I don’t believe that drawing inferences off of past price action is necessarily a strong predictor of the future, especially on an “all things considered” basis going forward.
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SPX at 1062.90 as this post is written