U.S. rating demotion set on fire exchanges worldwide, which fell one after another. Few know, however, that a temporary employee of U.S. Treasury found an error of $2 trillion in the agency Standard & Poor’s calculations and was about to save the “honor” of the U.S.
After Standard & Poor’s has informed the U.S. government of its intention to downgrade the rating of the country to AA + from AAA, the officials tried desperately to understand why. An interim employee, John Bellows, was the one who has discovered, a few minutes after receiving the statement, that S & P has committed a major error, according to thedailybeast.com. Thus, the agency’s calculations showed a deficit of U.S. higher with almost 2.1 trillion dollars than it actually was.
From economics to politics
At the same time, Treasury Secretary Tim Geithner, reacted virulently asking the officials from S & P to fix the mistake. The rating agency has admitted the error, but said that the U.S. rating would be downgraded anyway. That same evening, the official announcement was made and brought uncertainty to stock markets worldwide.
Then the spotlight moved on Bellows and everyone tried to find out who he is. John Bellows was a temporary employee and held the position of Acting Assistant Secretary in the department of economic policy. After he noticed the mistake, he posted on his blog a story about the mistake of the rating agency. “Once Treasury has identified this error, S & P maintained its decision to lower the rating, it just changed the reasoning from the economic to a political one”, he noted.
What has actually happened? In short, S & P misinterpreted the percentage of Gross Domestic Product (GDP) that the public debt could reach in 2012 using a wrong assumption on the budget. Instead, the Congressional budget Commission’s calculations show a debt reduction by $2 trillion. S & P response shows the agency’s political vision: the mistake has no significance because the amount is large enough to justify a demotion, especially considering the stalemate of Washington politics.
The unknown Bellows
In respect to the Treasury employee who discovered the mistake, the Wall Street Journal writes that his position of assistant secretary for economic policy has undermined the importance within the institution.
Since October 2010, Bellows was appointed head of the Economic Policy Bureau, an institution that analyzes economic trends both locally and externally. From this position, he is directly responsible to the Treasury Secretary, Tim Geithner, and participate in budgeting. He recently was appointed as interim assistant secretary when former acting U.S. Treasury official Alan Krueger gave up his position. Moreover, the person nominated to fill the position has not been confirmed in office.
Before he came to the attention of the media, his name was linked to more than a few academic papers and on his blog on economic issues he debates measures to combat the effects of unemployment.
Another view
Even so, Bellows’ opinion is not supported by all economists. For example, John Taylor, Stanford economist, says that although there is reason to dispute the U.S. rating downgrade, a mathematical mistake is not one of them: “The discussions would be more effective if government officials would use their time to find ways to reform the tax system and to address public debt”.
Meanwhile, S & P warned that it might lower again the credit rating of the U.S. in the next period.