Speaking of the Journal overhyping the S&P downgrade of U.S. Treasurys, its sister magazine SmartMoney has a doozy of a personal-finance piece out today that trips all over itself.
Here’s the headline:
Post-Downgrade, Higher Rates for Borrowers
Treasurys have fallen sharply since the downgrade, so why would borrowers rates be going up? The story can’t even make it to the subhed without hedging there:
In spite of the Fed’s promise to keep rates low, consumers may see higher rates on credit cards, auto loans and mortgages
On to the lede, and SmartMoney is back to not hedging:
It’s been less than a week since Standard & Poor’s stripped the U.S. government of its triple-A rating and already consumers are starting to feel the effects, in the form of rising interest rates on many loans.
The piece has zero evidence of any consumers starting to feel the effects of higher interest rates post-downgrade. We’re told that credit card rates have remained flat and that 30-year fixed-rate mortgages went up 0.03 percentage points on Monday (left out is that rates yesterday sunk back below Friday levels). Then we’re told that auto loan rates had their “biggest weekly increase this year” last week—before the downgrade.
Unsurprisingly, the hedging is back in full effect in the second paragraph with lots of weasel words (in bold):
In spite of the pledge by the Federal Reserve today to keep its interest rate low for the foreseeable future, the recent years of low interest rates seem to be coming to an end. The rates on most loans, including credit cards, car loans and mortgages, are at least influenced by the yields on Treasurys if not pegged directly to them, and Standard & Poor’s downgrade Friday of U.S. government debt suggests that Treasury yields will eventually rise, dragging the rates on consumer loans with them. While that hasn’t happened yet — in fact, Treasurys have rallied, pushing prices up and yields down — experts expect that won’t last. “Over the long term, all rates will rise,” says Mike Moebs, CEO and economist at Moebs Services, an economic research firm.
So “experts” think, maybe, Treasury rates will rise eventually because, perhaps, the S&P downgrade suggests low interest rates seem to be ending. Since Treasurys are at or near all-time lows, Mr. Moebs isn’t exactly saying anything quoteworthy by predicting interest rates will rise “over the long term.” When might this happen and how will it be tied to the downgrade?
We go to the third paragraph, which further clouds the picture:
Of course, no one knows for certain whether rates will rise, or how quickly, or whether they’ll affect all borrowers equally. But if the historical relationships hold between what consumer borrowers pay and what the government does, here’s a look at what’s likely to happen.
So “Post-Downgrade, Higher Rates for Borrowers,” but “no one knows for certain whether rates will rise”? I see!
What a mess. This is a classic case of not letting the facts get in the way of your conclusion.
You know what a better story might have been? “Post-Downgrade, Lower Rates for Borrowers.”
What a mess.
I would agree. Would you, Ryan, argue that there are no consequences for a credit downgrade (whether it be to a business, government or an individual) on the interest that borrower pays to finance its debt? Its basic Econ 101. And for Pete's sake the downgrade is not even one week old! How quickly would you expect to see its impacts, especially with what’s been going on in Europe the past week? Investors see treasury securities as safe havens RIGHT NOW because things look so poor elsewhere. The long term debt outlook for the US is abysmal, even if taxes are restored to their pre 2001 levels. Treasuries are the simply the best looking horse in the glue factory.
Talk about not letting facts get in the way of a conclusion.
You seem to be wedded to the conclusion that since S&P is such a piece of shit that means anything they say is piece of shit when you should be asking if their underlying reasons, namely that we face $10’s of trillions in long term unfunded liabilities and little political will to address it, are sound. It’s a classic case of killing the messenger.
#1 Posted by Mike H, CJR on Thu 11 Aug 2011 at 02:43 PM
Whether S&P is "right" does not change the fact that downgrade rumours are a distracting factor. For France, for example. Rumour: French bank to collapse. Whoops! Not true, as yet, anyway. What S&P should do is stop aggravating matters, by avoiding precipitate action.
Ryan's instincts about the downgrade have turned out to be accurate. Despite a surface plausibility, S&P's accounts of its projections have been opaque and misleading, and its practices in information management shoddy. Matters the SEC and Senate Banking Committee have a duty to take up.
Complicating factors that keep emerging are bad training, skill-less 40-somethings, and disarray in the education-for-profit field. There has yet to be a penetrating article on the obsolescence of American education as exacerbating the crisis. The federal government should choose four states for immediate audit of practices in education at all levels. From September 1 to December 1.
The home states of Harvard, Yale, Columbia, and Princeton would be indicative. Much of the discourse on the economic crisis comes from these states. Wednesday's WSJ Opinion piece by Jeb Bush on economic strategy alludes to the Yale course in Grand Strategy, in its first paragraph. Yet there are obvious limitations of this course. Can anyone tell me what those limitations are?
#2 Posted by Clayton Burns, CJR on Thu 11 Aug 2011 at 04:51 PM
Ryan, color me cynical, but if this downgrade had happened on Bush's watch you would be singing a very different tune. Instead, you're doing all you can to offer cover for your precious O and his teetering legacy. A downgrade is a big deal and a very newsworthy item.
I did enjoy some of your past efforts, but I have to say that as a commenter you are an all-too predictable partisan. You have become irrelevant.
#3 Posted by JLD, CJR on Thu 11 Aug 2011 at 07:33 PM
Ryan has a selective tolerance for hedging...
When the weasel words break bad on the commie/liberal cause (as they do in mentioning the downgrade the Obama administration told us "wasn't possible" a couple of months ago).. Then this hedging is poor journalism and thus subject to his "watchdog" wrath.
But when it comes to Amazon's call for a national sales tax, Ryan gives us the following:
"I’m pretty sure Amazon isn’t pushing too hard for a national sales tax... That seems like an obvious smokescreen.... tons of programmers who could>about two hours if they were told to... "
http://www.cjr.org/the_audit/wsj_fronts_amazons_tax_avoidan.php?page=1
"Wall Street" people, corporations, Republicans, and Tea Party activists are presumptive liars here in Chittumland, and their claims are worthy of Ryan's weasel worded speculative refutation.
But let somebody threaten Big Government with such speculation?
HELL NO!.
Ryan ought to own up the fact that he isn't interested in journalism, but intead in activism, and head off to spin his hypocritical weaseling on Capitol Hill.
#4 Posted by padikiller, CJR on Thu 11 Aug 2011 at 08:02 PM
Padi, keep in mind CJR's mission slogan: "Strong Press, Strong Democracy." (Not "Republic," "Constitution," nor "Liberty.") So, from the very get-go, CJR virtually says, "We promote a misguided view of U.S. civics and the intent of the American Founding." And in a mob-rule environment such as "democracy," the majority opinion naturally prevails: in CJR's case, apparently, it's a unanimous Keynesian belief among its staff that the central govt's economic role always is Innocuous Savior and never Main Culprit.
#5 Posted by Dan A., CJR on Fri 12 Aug 2011 at 06:09 PM
To see such commie/liberal activism cloaked in the mantle of "professional journalism" is enough to drive any reasonable person nuts.
It's one thing to take a partisan point of view in a column (that's what columns are for, mostly)... But it's another thing to apply different reporting standards based on the ideology of the subject of the article.
There is a simple reason commie/liberals employ such hypocritical double standards - their positions can't survive without them. They can't credibly defend the "spend our way out of bankruptcy" or "print more money" nonsense without tilting the playing field.
#6 Posted by padikiller, CJR on Sat 13 Aug 2011 at 09:43 AM