Standard and Poors, a once-excellent bond rating agency that now largely ignores economics and instead reflects market sentiment, downgraded the US to a AA+ rating this week. After holding back a big yawn, I took another sip of coffee and went to get a danish.
The Economist magazine said it best (with complete lack of emotion) a few weeks ago: "America's net indebtedness is a perfectly affordable 65% of GDP...the current problems, rather, are political." Yet, this reality has not stopped pundits and game-playing politicians from making it seem like America will go bankrupt tomorrow.
After the US Treasury pointed out that S&P had miscalculated by a couple of trillion dollars while making its decision, S&P responded that they have decided to maintain the downgrade anyway.
Ratings changes are great for business. S&P’s well-timed downgrade will give stockbrokers around the world a fantastic excuse to call their already-flustered clients on Monday to solicit new trades.
Panic and churn!
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Churn (verb):
1) Agitate milk or cream in order to produce butter.
2) Excess trading of a client’s account in order to increase broker’s commissions.
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"If anything, it may change my opinion on S&P."
Warren Buffett, when asked if S&P's debt downgrade will change his opinion about U.S. treasuries.
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