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Monday Morning Coming Down
Democrats partied hard on Sunday night, but Monday's markets should have sobered them up.


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Kevin D. Williamson

Who has better credit than Uncle Sam? If you ask the bond market, that elite list includes Berkshire Hathaway, Procter & Gamble, Lowe’s, Johnson & Johnson, and a host of other blue-chip corporate borrowers. The U.S. government has the ability to levy taxes on the largest national economy in the world, a vast and fearsome revenue-collection apparatus, and more than two centuries of constitutional government under its belt. P&G has Tampax.

In a fascinating dispatch Monday, Reuters reported that an interesting mix of corporate bonds have “yields” — rates of return — that have gone below that of Treasuries. (A bond’s yield corresponds to its risk: High-yield bonds are also known as “junk bonds,” while very safe bonds have very low yields.) The fact that Warren Buffett’s bonds are considered a safer bet than Tim Geithner’s should have been sobering news, especially on the morning after Democrats in Congress sent President Obama a mastodon of a new spending program with a $2 trillion price tag. As hangover headaches go, this is going to be brutal, and investors apparently have more faith in Johnson & Johnson’s ability to sell Tylenol than in Washington’s ability to pay for it. Mitchell Stapley, an analyst with Fifth Third Asset Management, told Reuters that the numbers coming out of the bond market are a “slap upside the head of the government.” The fearful question is: How much harder does Washington need to get slapped before government comes to its senses?

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Winding up to deliver the next slap are the credit-rating agencies, the bond-graders who hand down the official word on how risky a debt is. Moody’s has been jumping up and down warning that the United States, along with France, Germany, and the United Kingdom, is headed toward losing its purportedly bulletproof AAA bond rating. A smaller credit-rating agency, Brazil’s SR Rating, made a splash in May when it decided to downgrade U.S. Treasuries from AAA to AA. The move was derided as a stunt at the time, and Tim Geithner is on the record as saying there is “not a chance” the United States will lose its gold-plated rating, but Moody’s cannot be dismissed so easily.

It takes a lot to get Moody’s attention: The major credit-rating agencies are not famous for being the most proactive or far-sighted guys in the financial world.



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