Tuesday 19 April 2011

The First Trumpet

Dürer - The seven angels with their trumpets.

"And the seven angels which had the seven trumpets prepared themselves to sound.
"The first angel sounded, and there followed hail and fire mingled with blood, and they were cast upon the earth."
(Rev. 8:6-7)

That's it, folks. Brace yourselves, because the end is nigh: the first angel sounded his trumpet.

Mind you, the prophecy was slightly wrong in its timing: the end came before May, 21st 2011. The first trumpet sounded on April, 18th, 2011 (US East Coast time, Tuesday 19th, Australian local time):

"Shortly before the market open, Standard & Poor's revised its outlook on US sovereign debt to 'negative' from 'stable' - the first ever challenge to Washington's top-line AAA grading." (see here)

However, before running for the hills, buying canned food or preparing your bunkers, please read this excellent post by my friend the always Stubborn Mule:

"So, there is no need for panic. Once again, the rating agencies are showing that we should not be paying too much attention to them. After all, as they all repeatedly said in hearings in the wake of the financial crisis, their ratings are just 'opinions' and not always very useful ones at that."

That's a sound, sensible opinion. In fact, if the Mule has a problem is that he is way too moderate and level headed.

As a raging Magpie, I am not nearly as constrained: financial institutions have a long history for manipulating their "expert" advice. Referring to the IMF, Rosnick and Weisbrot (from the Center for Economic and Policy Research, headed by the renowned economist Dean Baker) concluded:

"The IMF's large and repeated errors in projecting GDP growth in Argentina since 1999 strongly suggest that these errors were politically driven. The large overestimates occurred during the country's 1998-2002 depression, when the IMF was lending billions of dollars to support policies that ultimately ended in an economic collapse. Similarly, the underestimates took place at a time when the IMF had an increasingly antagonistic relationship with the Argentine government, and opposed a number of its economic policies. (...)
As this paper shows, the IMF's public documents and statements regarding Argentina lend support to the idea that its errors were related to political considerations.

Of course, S&P would never do this kind of things, right? Particularly when such crass manipulation would hurt the always weak Obama administration.

Well, as I am feeling rather apocalyptic, let's remember an often forgotten passage of the Revelations:
"And I saw three unclean spirits like frogs (...) out of the mouth of the false prophet." (Rev. 16:13)

I edited some parts of the text, to make my meaning clearer.

And talking about hurting the Obama administration. The latest Washington Post-ABC News Poll (a sample of 1,000, taken before last Monday, April, 18th), concludes that:

"In the survey, 47 percent approve of the job Obama is doing, down seven points since January. (...)
"Driving the downward movement in Obama’s standing are renewed concerns about the economy and fresh worry about rising prices, particularly for gasoline. Despite signs of economic growth, 44 percent of Americans see the economy as getting worse, the highest percentage to say so in more than two years."
Obama seems highly vulnerable, from the point of view of his credibility as economic manager. Ironically, Obama's reluctance to confront the indiscriminate Republican opposition could be making things worse, as argued by Mike Konczal.

This gives the S&P move an entirely new relevance.

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