Deficit – Donald Marron

A “Normal” Budget Isn’t Really Normal

Treasury closed the financial books on fiscal 2014 last week. As my colleague Howard Gleckman noted, the top line figures all came in close to their 40-year averages. The $483 billion deficit was about 2.8 percent of gross domestic product, for example, slightly below the 3.2 percent average of the past four decades. Tax revenues clocked in at 17.5 percent of GDP, a smidgen above their 17.3 percent 40-year average. And spending was 20.3 percent, a bit below its 20.5 percent average.

Taxes, spending, and deficits thus appear to be back to “normal.” If anything, fiscal policy in 2014 was slightly tighter than the average of the past four decades.

That’s all true, as a matter of arithmetic. But should we use the past 40 years as a benchmark for normal budget policy?

It’s common to do so. The Congressional Budget Office often reports 40-year averages to help put budget figures in context. I’ve invoked 40-year averages as much as anyone.

But what has been the result of that “normal” policy? From 1975 to today, the federal debt swelled from less than 25 percent of GDP to more than 70 percent. I don’t think many people would view that as normal. Or maybe it is normal, but not in a good way.

Just before the Great Recession, the federal debt was only 35 percent of GDP. Over the previous four decades (1968 through 2007), the deficit had averaged 2.3 percent of GDP, almost a percentage point lower than today’s 40-year average.

That comparison illustrates the problem with mechanically using 40-year averages as a benchmark for normal. A few extreme years can skew the figures. In 2007, we would have said deficits around 2 percent of GDP were normal. Today, the post-Great Recession average tempts us to think of 3 percent as normal. The Great Recession has similarly skewed up average spending (from 19.9 percent to 20.5 percent) and skewed down average taxes (from 17.6 percent to 17.3 percent).

As recent years demonstrate, we don’t want a normal budget every year. When the economy is weak, it makes sense for taxes to fall and spending and deficits to rise. When the economy is strong, deficits should come down, perhaps even disappear, through a mix of higher revenues and lower spending.

Looking over the business cycle, however, it is useful to have some budget benchmarks. A mechanical calculation of 40-year averages won’t serve. Instead, we need more objective benchmarks. On Twitter, Brad Delong suggested one benchmark for deficits: the level that would keep the debt-to-GDP ratio constant. I welcome other suggestions.

Uncle Sam Is Smaller (Relatively) Than We Thought

At 8:30 this morning, Uncle Sam suddenly shrunk.

Federal spending fell from 21.5 percent of gross domestic product to 20.8 percent, while taxes declined from 17.5 percent to 16.9 percent.

To be clear, the government is spending and collecting just as much as it did yesterday. But we now know that the U.S. economy is bigger than we thought. GDP totaled $16.2 trillion in 2012, for example, about $560 billion larger than the Bureau of Economic Analysis previously estimated. That 3.6 percent boost reflects the Bureau’s new accounting system, which now treats research and development and artistic creation as investments rather than immediate expenses.

In the days and months ahead, analysts will sort through these and other revisions (which stretch back to 1929) to see how they change our understanding of America’s economic history. But one effect is already clear: the federal budget is smaller, relative to the economy, than previously thought.

The public debt, for example, was on track to hit 75 percent of GDP at year’s end; that figure is now 72.5 percent. Taxes had averaged about 18 percent of GDP over the past four decades; now that figure is about 17.5 percent. Average spending similarly got marked down from 21 percent of GDP to about 20.5 percent.

These changes have no direct practical effect—federal programs and tax collections are percolating along just as before. But they will change how we talk about the federal budget.

Measured against an economy that is bigger than we thought, Uncle Sam now appears slightly smaller. Wonks need to update their budget talking points accordingly.

What’s the Mix of Spending and Revenue in the President’s Deficit Reduction Proposal?

President Obama’s budget identifies a group of policies as a $1.8 trillion deficit reduction proposal. I found the budget presentation of this proposal somewhat confusing; in particular, it is difficult to see how much deficit reduction the president wants to do through spending cuts versus revenue increases.

After some digging into the weeds, I pulled together the following summary to answer that question:

The proposal would increase revenue by $750 billion over the next decade. Much media coverage has been incorrectly suggesting an increase of either $580 billion (revenue from limiting tax breaks for high-income taxpayers and implementing a “Buffett Rule”) or $680 billion (adding in the revenue that would come from using chained CPI to index parameters in the tax code).

But there’s another $67 billion in additional revenue. Almost $47 billion would come from greater funding for IRS enforcement efforts that lead to higher collections. To get that funding, Congress must raise something known as a “program integrity cap.” The administration thus lists this as a spending policy, but the budget impact shows up as higher revenues (assuming it works—such spend-money-to-make-money proposals don’t always go as well as claimed, although there is evidence that IRS ones can). Several similar administrative changes in Social Security and unemployment insurance add almost $1 billion more.

Another $20 billion would come from increasing federal employee contributions to pension plans. That sounds like a compensation cut to me and, I bet, to affected workers, and would be implemented through spending legislation. Under official budget accounting rules, however, it shows up as extra revenue as well.

In total, then, “spending” policies would generate more than $67 billion in new revenue.

Taken as a whole, the president’s deficit reduction proposal includes $750 billion in revenue increases, $808 billion in programmatic spending cuts, and $202 billion in associated debt service savings. The proposal thus involves about $1.1 in programmatic spending cuts for every $1 of additional revenue.

At least according to traditional budget accounting. If you believe (as I do) that many tax breaks are effectively spending in disguise, the ratio of spending cuts to tax increases looks much higher. From that perspective, much of the $529 billion that the president would raise by limiting deductions, exemptions, and exclusions for high-income taxpayers should really be viewed as a broadly-defined spending cut. I haven’t had a chance to estimate how much of that really is cutting hidden spending, but even if only three-quarters is, the ratio of broadly-defined spending cuts to tax increases would be 3.5-to-1.

The Balanced Budget Amendment’s $300 Billion Error

The balanced budget amendment introduced by Senate Republicans yesterday contains a striking error. As written, it would limit federal spending much more than they claim or, I suspect, intend (I said the same back in 2011, when this first came up).

The senators want to balance the budget by limiting spending rather than raising tax revenues. They thus propose the following, according to a press release from sponsor Senator John Cornyn:

Requirement to Balance the Budget. With limited exceptions, the federal budget must be balanced.

Presidential Requirement to Submit a Balanced Budget. Prior to each fiscal year, the President must submit to Congress a balanced budget that limits outlays to 18 percent of GDP.

18 Percent Spending Cap. With limited exceptions, Congress must limit outlays to 18 percent of GDP.

That 18 percent figure is in line with average tax revenues over the past four decades, but well below average spending, which has been about 21 percent.

So what’s the error? The way the amendment would implement the spending limit:

Total outlays for any fiscal year shall not exceed 18 percent of the gross domestic product of the United States for the calendar year ending before the beginning of such fiscal year, unless two-thirds of the duly chosen and sworn Members of each House of Congress shall provide by law for a specific amount in excess of such 18 percent by a roll call vote. (Emphasis added.)

The amendment thus doesn’t limit spending to 18 percent of the current fiscal year’s GDP; it limits it to 18 percent of GDP in the previous calendar year.

At first glance that may not sound like much. But it works out to be 21 months during which inflation and real growth will almost always be boosting GDP. For example, fiscal 2014 starts in October of this year. If the amendment were effective today, spending would be limited to 18 percent of last year’s GDP—that’s calendar 2012, which started (of course) in January 2012.

That 21-month lag has a big effect on the spending limit. Consider fiscal 2018, the first year it could conceivably take effect (because of a waiting period in the amendment). The Congressional Budget Office projects that nominal GDP that year will be $20.9 trillion. So the Republicans’ fiscal 2018 spending limit ought to be 18 percent of that, a bit less than $3.8 trillion. But the amendment would look back to calendar 2016 to set the limit. CBO estimates that year’s GDP at roughly $19.1 trillion, nearly $2 trillion less than for fiscal 2018. The amendment would thus limit fiscal 2018 spending to a bit more than $3.4 trillion. That’s only 16.4 percent of GDP that year, about $330 billion less than the Republicans’ stated goal.

If you do the same math for the remaining years in CBO’s latest outlook, fiscal 2019 through 2023, that gap never falls below $300 billion.

The same drafting error came up when GOP senators introduced a balanced budget amendment in 2011. When I wrote about it then, several commentators suggested that perhaps it wasn’t an error, but rather a sneaky way to try to limit spending even further. I am not so cynical. Drafting a spending target based on GDP isn’t easy, since you don’t know what future GDP will be. So I can understand why someone drafting this might try to use a measure of GDP that’s already known, albeit subject to much revision. But they goofed.

It’s disappointing that no one has fixed this error in the intervening 18 months. I am not a fan of an arbitrary constitutional limit on spending—even with a supermajority escape valve—but as a fan of arithmetic, let me offer one simple approach: use a GDP forecast from whatever entity is responsible for the spending forecast. For the president’s budget submission, that would be the Office of Management and Budget, and for the congressional process it would be either CBO or the House and Senate Budget Committees. That would make the GDP forecast even more politically sensitive, of course, but it’s better than a formula that misses its intended target by $300 billion each year.

Deadlines, Deadlines, Deadlines

My latest column for the Christian Science Monitor argues that a slew of budget deadlines will drive policy action this Fall. Case in point, the potential for a government shutdown when the government’s fiscal year ends next week. I don’t think that’s likely, at least not yet, but such deadlines will be the big thing this fall:

September brings the change of seasons. Football players return to the gridiron. New television programs replace summer reruns. In Washington, legislators gear up for another season of legislative brinkmanship.

What distinguishes such brinkmanship from ordinary legislating? Hard deadlines.

Such deadlines force Congress to address policy issues that might otherwise languish due to partisan differences or legislative inertia.

Last spring, for example, the repeated threat of a government shutdown forced Congress to decide how much to spend on government agencies in fiscal 2011. This summer, the debt limit forced Republicans and Democrats to reach a budget compromise before Aug. 3, the day we would have discovered what happens if America can’t pay all its bills.

Hard deadlines thus can force Congress to address major issues. But they also invite that brinkmanship.

Like students who put off writing term papers until the night before they’re due, legislators often drag out negotiations until the very end. As we saw with the debt-limit debate, the ensuing uncertainty – will the United States really default? – can damage consumer, business, and international confidence. Hard deadlines also give leverage to those legislators who are least concerned about going over the brink.

So get ready for the new season. The fall legislative season is full of deadlines that could invite such brinkmanship. Here are five.

[The first two were funding for the Federal Aviation Administration, whose short-term funding was scheduled to expire on September 16 and the highway bill, whose funding was scheduled to expire on September 30. Both won temporary extensions between the time I wrote my column and when it appeared online. FAA funding now runs to January, and highway funding through March.] …

Sept. 30 also marks the end of the fiscal year – an especially important deadline. Congress has made woefully little progress in deciding next year’s funding. So we again face the prospect of temporary funding bills being negotiated in the shadow of threatened government shutdowns.

The fourth deadline comes on Nov. 23, the day the new “super committee” has to deliver a plan to address government debt and cut the deficit by at least $1.2 trillion over the next decade. If any seven committee members agree by that date, their plan will get special, expedited consideration in the House and Senate.

If the committee fails to reach agreement or Congress fails to enact it by Dec. 23, however, then automatic budget cuts go into effect for a range of programs, including defense, domestic programs, and Medicare, starting in 2013.

A final deadline comes at the end of the year, when several economic initiatives are set to expire, including the 2 percent payroll tax holiday and extended unemployment insurance benefits.

Each of these deadlines will command congressional attention. The downside of inaction will be tangible and visible. With renewed concern about jobs, policymakers will feel extra pressure to continue any funding or tax cuts that can be directly linked to employment.

These deadline-driven policy issues will thus dominate the fall legislative season. That will leave little space for any new initiatives that don’t come with a deadline.

The Latest Sovereign Debt Meme? Going Big

The developed world is awash in sovereign debt. Greece stands on the precipice of painful (and inevitable) default. Italy and Spain struggle to convince markets that their debts are good. Portugal and Ireland hope to get in the lifeboat with Italy and Spain, rather than drown with Greece. And then there’s the United States. Much further from a sovereign crisis than many Euro nations, but still on a worrisome long-term path of spiraling debt.

So what should policymakers do? Well, the dominate meme this week was clear. If you are faced with sovereign debt worries, you should go big:

On Tuesday, the Committee for a Responsible Federal Budget released a letter signed by a group of former government officials, budget experts, and business leaders (including me) urging the Joint Select Committee, aka the super committee, “to ‘go big’ and develop a large-scale debt reduction package sufficient to stabilize the debt as a share of the economy.” A group of 38 senators followed with a similar letter, and a host of people made this argument at the super committee’s first hearing.

The same day, Mario Blejer–who led Argentina’s central bank after its default–urged Greece to go big: “Greece should default, and default big. A small default is worse than a big default and also worse than no default,” he said in an interview reported by Reuters Eliana Raszewski and Camila Russo.

And then there was Benjamin Reitzes of BMO Nesbitt who was quoted by The Globe and Mail’s Michael Babad offering similar advice to the BRICS. Not, of course, to deal with their own debt, but with Europe’s: “Considering Chinese purchases of European peripheral debt over the past year have provided only temporary relief, a small purchase won’t likely have much impact … go big or go home.”

So there you have it. If you find yourself at a loss for words in a weekend discussion about sovereign debt, you know what to say: Go big. Or, if you are contrary sort, go small. Either way, you can keep the conversation going.

More Budget Foxes, Fewer Hedgehogs

My latest column at the Christian Science Monitor:

America’s fiscal challenges are often portrayed as a conflict between hawks and doves. The real battle, however, is between foxes and hedgehogs.

hedgehog_fox — Unfortunately, fiscal hedgehogs still have the upper paw.

“The fox knows many things, but the hedgehog knows one big thing,” wrote the ancient Greek poet Archilochus. Both foxes and hedgehogs play important roles in the policy ecosystem in normal times. In times of great change, however, society needs more foxes and fewer hedgehogs. More citizens and leaders who can adapt to new conditions, and fewer who want to preserve the status quo.

That’s where we find ourselves today. Despite all the anguish over a debt limit deal, America’s fiscal outlook remains daunting. Little progress has been made on our largest budget challenges. Despite bipartisan efforts, prospects for a grand fiscal bargain remain dim.

One reason is that fiscal hedgehogs still have the upper paw on key issues.

Consider entitlements. Everyone knows that entitlement spending is our No. 1 long-term budget challenge. Because of an aging population and rising health-care costs, spending on Social Security and federal health programs will explode. The Congressional Budget Office estimates that over the next 25 years spending on these programs will rise from roughly 10 percent of the economy to almost 17 percent. Accommodating that growth would require substantial cuts in other government programs, much higher tax revenues, or unsustainable deficits and debt.

The challenge is to find ways to keep the core benefits of these programs while reining in costs. This is where entitlement hedgehogs and foxes part company.

The hedgehogs know one big thing: These programs provide major benefits. Social Security, for example, has dramatically reduced poverty among seniors and provides essential income to millions of retirees.

Inspired by that one big thing, hedgehogs oppose any benefit reductions, such as increasing the eligibility age or trimming benefits to reflect increased longevity.

Entitlement foxes have a more nuanced view. They recognize, like the hedgehogs, the value of the guaranteed retirement income that Social Security provides. But they also know that the number of retirees receiving benefits is growing faster than the number of workers paying payroll taxes. They know that Americans are living longer but retiring earlier. They know, in short, that the future will be different from the past and that the program needs to evolve to remain sustainable. Foxes are thus open to ideas like raising the eligibility age or changing the benefit formula.

A similar dichotomy exists with taxes. Revenue hedgehogs know one big thing: Taxes place a burden on taxpayers and the economy. Thus, they oppose all tax increases, even efforts to reduce the many tax breaks that complicate our tax code.

Revenue foxes see things differently. They recognize the burden that taxes place on taxpayers and the economy. But they also know that tax increases are not all created equal. Higher tax rates, for example, are usually worse for the economy than cutting back on tax breaks. Indeed, cutting tax breaks sometimes frees taxpayers to make decisions based on real economic considerations rather than taxes, thus strengthening the economy. That’s why revenue foxes support eliminating many tax breaks.

Fiscal hedgehogs will never embrace such changes. To make progress, we need more fiscal foxes.

Which Rating Agency Downgraded the U.S. First? Not S&P

The S&P downgrade of U.S. credit has understandably dominated headlines, but S&P was by no means the first mover. At least three other rating agencies had already downgraded the United States.

Egan-Jones was the first Nationally Recognized Statistical Rating Organization (NRSRO) to downgrade. It lowered the U.S. rating from AAA to AA+ in mid-July. NRSROs are the companies that the SEC officially recognizes as credit rating agencies. They number ten in total, with Fitch, Moody’s, and Standard & Poors the most famous (or, in some circles, infamous).

Weiss Ratings was the first U.S.-based rating agency to rate the U.S. below AAA. It initiated official coverage in April at the equivalent of BBB and lowered to the equivalent of BBB- in mid-July, just one notch above junk. Back in May 2010, Weiss challenged the three major agencies to downgrade the United States, but hadn’t yet rated the U.S. itself. Weiss is not an NRSRO.

And then there’s Dagong, the Chinese rating agency. It initiated coverage with a AA rating in July 2010. It then cut the U.S. to A+ in November and to A last week.

So who was first?

Weiss if you count its May 2010 announcement that the U.S. ought to be downgraded. Dagong if you go by the first published rating below AAA. And Egan-Jones if you focus on the NRSROs.

Anyway you slice it, though, S&P wasn’t first.

S&P may want to make that point during the inevitable congressional hearings in September. And committee staffers should consider inviting Weiss or Egan-Jones as well.

ht: Dan D. and David M.

P.S. Apologies for the lack of links; I am writing on an iPad today, and it’s a nuisance to add them.

S&P’s $2 Trillion Error

In the final hours before Friday’s historic downgrade, Standard & Poors gave Treasury an advance copy of its report. Amazingly, that report contained a $2 trillion error in its calculations of U.S. deficits and debt over the next decade. Here are four things you should know about it.

1. Treasury hoped that S&P would change its decision in light of the error, but S&P shrugged it off as not material.

In a blog post, Acting Assistant Secretary for Economic Policy John Bellows described what happened when the error was discovered:

After Treasury pointed out this error – a basic math error of significant consequence – S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one.

On Saturday morning, S&P issued a clarification / rebuttal acknowledging the error, but downplaying its importance:

The primary focus [of our analysis] remained on the current level of debt, the trajectory of debt as a share of the economy, and the lack of apparent willingness of elected officials as a group to deal with the U.S. medium term fiscal outlook. None of these key factors was meaningfully affected by the assumption revisions to the assumed growth of discretionary outlays and thus had no impact on the rating decision.

2. Despite S&P’s claim, $2 trillion would “meaningfully affect” “the trajectory of debt as a share of the economy.”

It’s own revised calculations show net general government debt hitting 85% of gross domestic product in 2021 instead of 93%. That’s a big difference.

The 85% figure is still uncomfortably high and may well not deserve a AAA rating. But S&P was too dismissive in its clarification.

3. The error is understandable but remarkably sloppy for such an important analysis.

The source of the error is painfully familiar to anyone who deals with U.S. budget projections. S&P’s analysts didn’t use the right measuring stick — i.e., the right budget baseline — when analyzing the effects of the recently-enacted Budget Control Act.

In one sense, it’s easy to see how this error happened. Budget discussions are now hopelessly confused by a profusion of different baseline projections of what spending and revenues will look like in the future. Indeed, I have devoted multiple posts to clarifying how different revenue baselines fit together (e.g., here and here). I’ve even used Johnny Depp to highlight the challenge.

A similar challenge exists with discretionary spending. Official budget baselines assume that annual appropriations (the defense and non-defense spending Congress fights over every year) grow with inflation unless subject to an explicit cap. That was the basis, for example, for the official baseline that the Congressional Budget Office used in evaluating the impacts of the Budget Control Act.

Before the BCA, there were no discretionary spending caps, so annual budget authority was assumed to grow with inflation from the most recent appropriated levels. The BCA then generated $917 billion in budget savings by setting annual spending caps below those levels.

S&P messed up because it based its analysis on another baseline. That “alternative fiscal scenario” assumes that discretionary spending grows at the same pace as the overall economy, not just with inflation. That baseline implies much more spending and debt over the next decade — $2 trillion more, in fact — than the official baseline.

So, again, it’s easy to see mechanically how this error happened. But it’s still remarkably sloppy. Budget experts are well-aware of the problem of multiple baselines. Indeed, we all pepper our conversations and analysis with the question “what baseline are you using?” It’s stunning that S&P didn’t have multiple analysts asking the same question to make sure their original numbers were right.

4. S&P’s response to the error further demonstrates that its primary concern about the United States is political not numerical.

As S&P said in Friday’s report:

Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a ‘AAA’ rating and with ‘AAA’ rated sovereign peers. In our view, the difficulty in framing a consensus on fiscal policy weakens the government’s ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging.

In short, S&P worries that America won’t get its act together in time.

Five Things You Should Know About the S&P Downgrade

On Friday night, Standard and Poors announced that it was downgrading U.S. long-term sovereign debt from AAA to AA+, the first such downgrade in U.S. history.

Here are five things you should know about the downgrade — four important, one trivia.

1. S&P downgraded U.S. debt not only because of the deteriorating fiscal outlook, but also because of concerns about America’s ability to govern itself. It said:

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

2. Moody’s and Fitch recently reaffirmed their AAA ratings on U.S. sovereign debt. On Tuesday, Moody’s reaffirmed its Aaa rating, but assigned a negative outlook given the risk that the U.S. might flinch from further fiscal tightening, borrowing costs might rise, and the economy might weaken. Fitch similarly reiterated its AAA rating on Tuesday, but noted that it would have a fuller reassessment by the end of August. Fitch also emphasized the need for further fiscal adjustments.

One issue (on which I haven’t seen much discussion) is how the impact of a downgrade would increase if it spreads from just one rating agency to two or three.

3. In the past thirty years, five nations — Australia, Canada, Denmark, Finland, and Sweden– have regained a AAA rating after losing it. See, for example, this nice chart from BusinessWeek:

America still has much to learn from other nations that fixed their economies and budgets after financial crises. Sweden, for example, did a remarkable job addressing the fiscal challenges that followed its financial crisis in the early 1990s.

4. This downgrade may set off a cascade of further downgrades for other U.S. debt. The federal government provides an implicit or explicit backstop for many other debt securities. For example, the federal government stands behind trillions of dollars of debt and guarantees issued by Fannie Mae and Freddie Mac, GNMA securities, and securities backed by guaranteed student loans. It implicitly stands behind systemically important financial institutions. And it provides substantial support to state and local governments. S&P did not specifically address these other credits in Friday’s report, but did say that:

On Monday, we will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors.

S&P did reaffirm its highest, A-1+ rating on U.S. short-term debt, which should limit impacts on money market funds and other short-term lending markets.

5. S&P was not the first rating agency to downgrade U.S. sovereign debt. In the category of trivia, China’s Dagong credit rating agency downgraded U.S. credit to A with a negative outlook earlier this week. Dagong had initiated U.S. coverage with a AA rating about a year ago, which was lowered to A+ last November. Dagong apparently views the United States as a greater risk than China. Despite all of America’s problems, that seems a stretch.

Update: In addition, Egan-Jones, a U.S. rating agency, cut the U.S. to AA+ in mid-July. Egan-Jones thus wins the prize as first U.S.-based agency to downgrade. Writing in the Financial Times, Michael Mackenzie noted:

Egan-Jones was officially recognised in 2008 by the Securities and Exchange Commission and, unlike its larger rivals, generates revenue from institutional investors and not from issuers of debt. During the past decade it downgraded US carmakers and structured credit products before similar decisions by the big rating agencies.

Thanks to reader Dan Diamond for pointing out the Egan-Jones downgrade.