Jan. 24, 2013
I don’t think we are even approaching the point at which American government’s love of debt will shatter, but a couple of noteworthy events took place this week that may indicate that a new day is dawning.
First, the New York Times article described a bond-ratings agency’s actions this way:
Standard & Poor’s removed the United States government from its list of risk-free borrowers for the first time on Friday night, a downgrade that is freighted with symbolic significance but carries few clear financial implications.
If this had happened ten years ago, this announcement would probably have meant more and produced a greater effect. Maybe. Unfortunately, the bond-rating agencies’ credibility was shattered after their complicity in the mortgage debt debacle of the late-2000s was exposed. Now, so much of what they say sounds like Charlie Brown’s teacher: Wah-wah-wah-wah…. That will change eventually.
The second event was described in an AP article by Justin Pope:
Moody’s Investors Service on Wednesday downgraded its outlook for the higher education sector to negative across the board, saying even prestigious, top-tier research universities are now under threat from declining enrollment, government spending cuts and even growing public doubts over the value of a college degree.
There has been a great focus on student indebtedness, but much less attention is given to the decades-long binge of building and bureaucracy construction that has taken place at institutions of higher learning. That doesn’t appear to be Moody’s focus either – or the article’s. That is why did tuition increases need to exceed inflation for decades? Moody’s is looking at revenue shortfalls as if spending levels were set atop Mount Sinai. That’s OK, we will figure it all out, and many schools are going to go broke. To borrow a phrase: Academia’s chickens are coming home to roost.
It just may be that debt is not so harmless as the Keynesian ethos would lead us to believe.