Mark Gongloff reports:
S&P Bluffing on US Downgrade?: Here’s a little good news, maybe, depending on how much credit you give Morgan Stanley on such things: Morgan Stanley economist David Greenlaw doubts the rating agencies have the guts to downgrade the US. In a Bloomberg TV interview with Margaret Brennan, Mr. Greenlaw said he thought a downgrade would be avoided, because he thinks politicians will do just enough to enable the rating agencies to spare the US without losing face.
“We think they’re unlikely to follow through on the threat of a downgrade, as long as [politicians] give them something they can hang their hat on,” he said. Such a hat-rack could include a new deficit-fighting commission (a feature of House Speaker Boehner’s plan) and/or a plan to get to the $4 trillion in deficit reduction SP says it wants. “We think they’ll avoid downgrading,” he said.
And he doubts the rating agencies really have a stomach for a downgrade, and all the market turmoil that could come with it: “They don’t have a model in place,” he said. “There are all sorts of ramifications to downgrading the US, and they just haven’t taken the steps necessary to put in place a downgrade of the US sovereign credit.”
I don't have a model of S&P. I don't think that they should downgrade the U.S.--from an economic-forecasting perspective it would be wrong to do, and from an institutional-survival perspective it would be dangerous to do. But that does not mean that they will not do so.