The decision by Standard & Poor’s, the credit rating agency, to put the US on negative outlook has sent a frisson through markets. That reflects more the illicit thrill from the blasphemy of the pronouncement than any new information in its content.
In theory, credit rating agencies are useful to investors without in-house capacity to analyse exotic or opaque bonds. This is a role, however, at which the agencies failed by missing the risk in structured credit products during the last boom. For US Treasuries, the most liquid and transparent securities of all, it is hard to see why even flawless analysis by credit raters should be of any interest at all.
Nobody who pays the slightest attention to Washington needs the S & P update to tell them that US politicians cannot agree on how to put the public finances on a sound footing. Many other governments are under strain from the recession and future spending demands linked to demography. But the US problem is made worse by a combination of inherited fiscal recklessness and profound division on party lines leading to paralysis.