The man who caught S&P's $2 trillion error

[Chickadee]

The Daily Beast:

The man who caught S&P's $2 trillion error
By David A. Graham | The Daily Beast

It was quick thinking by a little-known Treasury functionary that nearly saved the U.S. credit rating on Friday—but didn’t quite.

After Standard and Poor's informed the government of its intention to downgrade the national rating from a pristine AAA to AA+, Treasury officials in Washington huddled to look over the ratings agency’s draft press release. It was reportedly John Bellows who noticed within minutes that S&P had made a glaring error that placed its calculations about the U.S. deficit off by about $2.1 trillion.

Treasury Secretary Tim Geithner quickly pushed back at S&P, pointing to the error. The agency acknowledged its mistake, then said it was charging ahead with the ratings change anyway. Later that evening, it officially downgraded American debt.

The tense Friday has cast the spotlight on Bellows, who is the acting assistant secretary for economic policy. After spotting the error, he took to the Treasury Department blog Saturday to blast S&P’s decision in dry but biting language. “After Treasury pointed out this error—a basic math error of significant consequence—S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one,” he wrote.

The mistake itself is enough to make any non-budget expert’s head ache. The short version is that S&P miscalculated the share of GDP that public debt would reach by 2021 by using the wrong assumption, or “baseline” about budgetary matters. The correct projection, as calculated by the nonpartisan Congressional Budget Office, would produce a difference of $2.1 trillion less in debt. S&P responded that, in essence, it didn’t matter—the number was large enough to merit the downgrade, especially given the political paralysis that has gripped Washington.

[Evad]

Horse feathers!

 

Is there any reason on this earth we should trust the government's "baseline"?

 

If anything, S&P underestimated the debt.