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Posted by on Aug 5, 2011 in Business, Economy | 4 comments

Is S&P Downgrade Based On Math Error ?

As Joe G has alread reported Standards & Poors has officially downgraded the US Treasury bond rating from AAA to AA+.

However reports are coming out of Washington that this action may be based upon math errors.

Being interviewed on MSNBC Congressman Barney Frank has pointed out that S&P was among the worst agencies in miscalculating the value of junk bonds during the time leading up to the financial crisis. They also have a long history of underrating the value of public bonds.

He also makes the very fair point that this downgrade is only relevant if you think the US Government is going out of business and will default, which of course they won’t.

I don’t often agree with Barney but in this case I think he has a point.

This of course does not mean this is totally meaningless. The problems S&P discussed in terms of public debt both short and long term are valid, as are the concerns on the fundamentals of the US economy.

But just as yesterdays drop in the market was not the end of the world, neither is this.