What’s Really Worrisome About Treasury Debt: Not Its Rating—Its Interest

So on Monday, Standard & Poor’s cut its ratings outlook for U.S. sovereign debt—and the markets had what can only be described as a tizzy. 

Stocks fell—commodities rose—I noticed things were off when my gold ticker shot up a full percentage point in under sixty seconds. Yikes! (Well, actually, as far as my own portfolio goes, it was more like, Yeay!)

“Not as sexy as a naked chick, I know, I know!”
The Fed Funds Rate, 2001–2011.
(click to enlarge)

Tons of people started scratching their heads, stroking their chins, and pompously wondering What It All Means.

Oh brother. Like Capt. Willard said: The bullshit piles up so fast, you need wings to stay above it. Most of the navel gazing was a waste of time—the lone discussion that I’d recommend was the New York Times’ “Room for Debate”, which more or less summed up smart-money thinking on the S&P announcement. (Paywall, but if you really want to read it, refresh the page, then stop the refresh before the page fully reloads.)

My own thinking is that the whole S&P announcement is meaningless—literally a non-event. 

What really matters is something people are starting to consider, as inflation begins to rise, and which the S&P announcement alludes to: The colossal interest payments on the U.S. fiscal debt. 

First, let’s put away the S&P nonsensical non-event: 

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