…are that S&P’s gonna downgrade the greenback. As I’ve mentioned, I see this as a “when” rather than an “if” — it might not happen today, but it’ll probably happen this year.
Lately I’ve been reconsidering a fair few of my opinions on the credit crisis and subsequent recession: I don’t think I’ve been paying enough attention to the interplay between the Eurozone public-debt crisis, the flight-to-quality story about the housing bubble and its fallout, whatever the hell the PRC is doing, and the slow-motion train-wreck of US medium-term debt commitments. I might have something intelligent to write about this weekend, but here’s one thought that’s been buzzing around my sleep-deprived brain: In the same vein as “I don’t have to outrun the bear, I just have to outrun you“, if the PIIGS countries of the Eurozone fall over in sovereign default (or at least threaten to) in the next year or two, will investors really care that much about the possibility that the US could throw some sort of default in the next decade or two? What’s the alternative?
In the mean time, here’s Tyler Cowen on the (at this point hypothetical) S&P downgrade:
- A few quick thoughts on the likely pending S&P downgrade (Marginal Revolution)
1. The Republican Party made a big, big mistake passing up a chance for a “grand bargain” with Obama. It’s time to be a realist about revenue increases, rather than signaling ideological purity. […]
2. Democrats need to choose on entitlements. Ross Douthat nails it. It’s time for Obama to lead too.
3. I don’t expect anyone to change their mind at this point, but the “we should have had a much bigger stimulus” argument is unlikely to go down in intellectual history as the correct view. Instead, Ken Rogoff and Scott Sumner are likely to go down as the prophets of our times. […]
By the way, I think the stock markets’ troubles have more to do with Eurozone public debt and exposure through European banks than with the US debt ceiling upgefuckery. (Not that the latter isn’t involved, mind you!) Before you go scrambling for your E*Trade account, though, remember to treat that as some random blogger’s gut feeling rather than anything resembling an informed opinion.
Update: Megan McArdle comments at length, blaming the debt ceiling upgefuckery for S&P’s loss of confidence and S&P’s ominous silence for the stock market’s troubles. Her story is that the debt-ceiling brinkmanship — mostly the GOP’s insistence on not raising taxes — has convinced S&P that the Feds aren’t going to be able to address debt issues before it’s too late.
Update 2: Surprise, surprise:
- S&P downgrades United States credit rating (Globe and Mail)