That Mohamed El-Erian is the most prolific op-ed writer-cum-CEO and co-CIO of a $1.4 trillion fixed fund in history is well-known. There rarely passes a 12 hour period without Mohamed's deep thoughts hitting the tape somewhere. Yet that El-Erian took a whopping 90 minutes to pen, clear with legal, and publish an oped to the S&P 9:00 am Eastern rating action definitively proves there was absolutely no leakage of this "earth shattering" news to anyone, anywhere.
El-Erian in FT blog Alphaville, as of 10:30 am Eastern:
S&P reaffirmed this morning the AAA
rating of the US but, importantly, slapped a “negative outlook” on the
rating due to concerns on how the country will address its “very large
budget deficits and rising government indebtedness.” In justifying this
dramatic move, it noted that “there is a material risk that US
policymakers might not reach an agreement in how to address medium- and
long-term budgetary challenges by 2013.”
This is a timely reminder of the seriousness of America’s fiscal issues, for the country and for the rest of the world.
The continued failure to come up with a credible medium-term fiscal
reform program would increase borrowing costs for all segments of US
society, thereby undermining investment, employment and growth. It would
also curtail foreigners’ appetite to add to their already substantial
holdings of US assets. And it would weaken the dollar.
The US also risks eroding its standing at the core of the global monetary system.
The world looks to America for a range of “global public goods” —
including the reserve currency, the deepest and most liquid government
debt markets, and the “risk free” standard. With no other country able
and willing to step into this role, the result would be global
efficiency loses and a higher risk of economic and financial
S&P’s warning should be heard loud and clear in Washington DC,
hopefully acting as a catalyst for faster convergence on a credible
medium-term fiscal package. It is also a reminder of risk to the global
economy, as well as the generalized deterioration in the sovereign
credit quality of several advanced economies.
The time has come for the US (and other advanced economies) to take
better control of its fiscal destiny—for the sake of American society
and for the well being of the global economy.