Last week our societal issues invariably boiled into the government bond market, with talk that ratings agencies are considering downgrading the U.S.’s AAA bond rating due to the shutdown (among other long-term issues beginning to sow doubt among investors).
This week, the ratings agencies find themselves in an unenviable position. Not that I’m wont to extend sympathy toward these questionable fixtures of the global economy, but it is admittedly a tough spot: They’re obliged to signal the clear reality of the U.S.’s ailing position – but they also risk triggering the imminent recession by lowering the credit rating of bonds underlying the global reserve currency. We have the same exigency is facing the Federal Reserve, where many are convinced Jay Powell can no longer be counted on to intervene in the financial markets.
Ironically, while it seems like both credit rating agencies and the Federal Reserve have big important decisions to make, in reality they face the same choice we’ve ever had – acting with caution (maximizing optionality and offloading risk) or embracing luck (accepting risk as a price of competition).
I’m generally in favor of more competition in any part of the economy—complacency and institutional stagnancy seem like a tread-line or signal factor of socio-cultural decay—but that’s a whole other can of worms. “Is Competition a Virtue?” is a topic for another time.
For now, perhaps a silver lining is that as our institutions continually face such unsavory choices, there will at least be no shortage of is-ought thought experiments to blog about.