You couldn’t make this stuff up. As we all know, Standard & Poor’s downgraded US debt over the weekend. Presumably, that reflects some sort of judgment that US debt is more risky than it used to be; that the risk of non-payment is now more than it was, etc.
So what happens?
Amid intense investor anxiety, both U.S. stocks and government bond yields are falling sharply as markets cut their expectations of economic growth and investors flee to the safety of U.S. Treasuries.
Despite the downgrade of United States government debt by Standard & Poor’s, investors are pouring into U.S. Treasury bonds, sending yields plummeting.
“These kind of price moves are staggering,” said Ajay Rajadhyaksha, an investment strategist at Barclays Capital. “Markets don’t believe the ratings move and they are sharply repricing growth expectations across much of the world. Looking forward the markets are actually saying that things are much weaker.”
The yield on the 10-year US Treasury was down 18 [basis] points at 2.38 percent.
Amazing. S&P renders a judgment that US debt is less safe than it used to be. As a result, investors engage in a wild sell-off, again tanking the markets (the Dow is down nearly 300 points at this writing) and hammering Americans’ retirement accounts, instead investing heavily in exactly the debt that S&P just said wasn’t as safe as everyone thought. Because “[m]arkets don’t believe the ratings move.”
So, on the one hand, it’s hard to fault S&P for being worried about the obvious dysfunction in Washington over economic matters. On the other hand, the ratings move looks a bit stupid, since obviously treasuries remain the “safe” investment of choice (along with gold, which continues to set records). Go figure.
fenway49 says
It’s fine to be worried about DC dysfunction. And it should be noted, as it has been on BMG, that their concerns were in part based on (1) predicted failure of the GOP to agree to any tax increases; (2) projected continued weak performance of the U.S. economy.
But let’s not forget these are the same people who had 99% of the mortgage-backed securities they rated at AAA in 2007. Do they really think 2011’s Treasury bills, trading at historic lows and with yields driven even lower today, are a worse bet than 2007’s MBS?
In a sane world plenty of S & P folks would be in prison.
Obama’s “moyen bargain” still makes it less likely we’ll see any economic progress on the fronts that matter: growth and in particular jobs. Progress on those fronts
will alleviate the real pain in the nation right now, and would be the best remedy for the deficit problems as well.
By conducting the debate on right-wing turf and agreeing to this horrific deal, Obama’s complicit not only in cruel cuts, but also undermines the very fiscal situation he purports to be concerned with.