Despite downgrade, South Korea believes in US debt

On Friday, California time, I spent much of the day driving up and down the 405, listening to CNN, MSNBC, and Fox News on the XM radio in my mom's Santa Fe. I was trying to get a feel for what the reaction was to Standard and Poor's downgrading of US debt from AAA to AA+ (the latter of which sounds good, but is not so great).

Fox News, surprisingly, was not talking about it at all, every time I tuned in to them. Maybe because actually discussing it would force them to recognize that holding a gun to the economy's head by threatening not to raise the debt ceiling so they could squeeze concessions out, all the while refusing to consider reversing the tax cuts on the rich that plunged us back into serious debt in the first place, was the catalyst for the downgrade*. Quoting S&P:

The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.

That's what pulling a political stunt that causes everyone to question whether we'll pay our bills will do. Thank you, Tea Party, you got what you wanted and still managed to damage the American Economic Ship.

Over at MSNBC, which I rarely watch or listen to, we had Rachael Maddow talking about how Standard & Poor's standard performance was pretty poor (see how I did that?). This was a loud echo of the White House and Treasury's criticism of S&P, which had made a $2.1 trillion accounting error in arriving at the downgrade but went ahead with it anyway. Over at CNN (I think), Democratic Congressman Barney Frank noted that this is the same "amateur hour" S&P who was telling us everything was hunky-dory right before the economic collapse of 2007-2008 (Ezra Klein quote of the week: "Standard Poor’s didn’t just miss the bubble; they helped cause it.").

I like what Gene Sperling of the White House Council of Economic Advisors had to say:

The magnitude of their error combined with their willingness to simply change on the spot their lead rationale in their press release once the error was pointed out was breathtaking. It smacked of an institution starting with a conclusion and shaping any arguments to fit it.

Reminds me of the Chinese a bit, I'd say.

Anyway, the original point of this post was to pass on the news that South Korea is responding to the S&P downgrade by saying it has faith in the US government's ability and willingness to cover its debt:

South Korea said it reaffirms faith in U.S. Treasuries even after Standard & Poor's last week cut the sovereign credit rating of the world's biggest economy.

"Our faith in the U.S. Treasuries has not changed, although we cannot say whether to sell or buy them," Vice Finance Minister Yim Jong Yong told reporters after an emergency meeting with officials from the central bank and financial regulators in Gwacheon, south of Seoul, today. "In principle, no other assets can replace the U.S. Treasury as safe asset."

Thank you. If anyone knows the danger of seeing faith in the economy go way out of proportion to the problems that exist, it's South Korea. And I'm happy to see that they don't want the US to fall victim in the same way. Unlike Beijing, I suppose Seoul realizes that eroding faith in the US economy by sniping at the US debt rating is a good way to make a self-fulfilling prophecy that comes back to bite Beijing (or Seoul) in the butt.

Caveat to everything: I'm not an economist, but my confidence in the South Korean economy to recover and for Seoul to pay off its debts was realized, and I have the same cautious optimism about the US in the long run.

* Talking down the economy to the point of stymieing the recovery is a Republican strategy for 2012. By lying about the stuff that has worked, (e.g., TARP, etc.), pretending that the economic crisis (and the unpopular ways of dealing with it) essentially began with the Obama administration, and regularly making statements that erode faith in the recovery so that it will cause consumers and investors to hold off on buying, they hope to (a) make the economy actually stay bad or even get worse, while (b) making it look like it's all Obama's fault. Note that this is similar to the strategy that Republican talking heads (e.g., Rush Limbaugh) claimed that the Democrats had in 2004 and 2008, vis-à-vis the economy and the Iraq War.