The recent downgrade of U.S. debt by Standard & Poor’s

The stock market has declined 12% in the past few days. And the clowns at Standard & Poor’s just downgraded the country’s debt from AAA to AA+, after overestimating the deficit by $2 trillion due to a calculation error. Ezra Klein argues that the downgrade is justified by the polarized political realities in Washington. My view is that S&P’s downgrade will not have a permanent adverse effect on the ability of the United States to find buyers for its debt at reasonable prices. We’re still the safest game in town. The market believed that to be true on Friday. It will not find things to be materially different one week from Friday, in my opinion. (A great many people disagree with this. We shall see.)

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About Guy N. Texas

Guy N. Texas is the pen name of a lawyer living in Dallas, who is now a liberal. He was once conservative, but this word has so morphed in meaning that he can no longer call himself that in good conscience. Guy has no political aspirations. He speaks only for himself.
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3 Responses to The recent downgrade of U.S. debt by Standard & Poor’s

  1. Drue Gawel says:

    It could have big implications for those funds that are required to hold AAA bonds. But 1) I don’t know which rating agency they use to make those determinations and 2) I don’t know what composition of investment funds are those particular funds. If the answers to 1) requires one and 2) is huge, then as the funds rebalance, we could have huge changes in demand for US bonds.

  2. hortonw says:

    It won’t have much impact because it does not tell us anything we didn’t already know. It’s very different from a ratings agency studying the figures on some muni bond about whose creditworthiness most of us know nothing. The risk of a Treasury default is largely a political calculation. S&P does not have any real advantage over the rest of us in making that calculation.

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