# S & P Just Lowered The U.S. Credit Rating To AA---Now What? **URL:** \ **Category:** Factual Questions\ **Created:** [August 6, 2011, 12:59am UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665 "2011-08-06T00:59:50Z")\ **Posts on this page:** 16\ **Page:** 4
**Author:** ![Chefguy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chefguy/32/138_2.png) [@Chefguy](https://boards.straightdope.com/u/Chefguy)\ **Post date:** [August 9, 2011, 4:28am UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/61 "2011-08-09T04:28:21Z")
> [@Bosda\_Di\_Chi\_of\_Tricor](#): > > Time to get greedy, & buy. Ummm…you might just want to hold off on that for a bit. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [August 9, 2011, 11:57am UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/62 "2011-08-09T11:57:40Z")
> [@Chefguy](#): > > Ummm…you might just want to hold off on that for a bit. Good luck trying to time the bottom. ---
**Author:** ![Chefguy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chefguy/32/138_2.png) [@Chefguy](https://boards.straightdope.com/u/Chefguy)\ **Post date:** [August 9, 2011, 2:16pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/63 "2011-08-09T14:16:59Z")
> [@Fear\_Itself](#): > > Good luck trying to time the bottom. Usually it’s whenever I sell. 😃 ---
**Author:** ![Sunspace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sunspace/32/1250_2.png) [@Sunspace](https://boards.straightdope.com/u/Sunspace)\ **Post date:** [August 9, 2011, 2:22pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/64 "2011-08-09T14:22:58Z")
> [@fiddlesticks](#): > > Apparently the answer is investors are abandoning the stock market for the safety of US Treasuries. Wait, what!? It’s at this point that I decided the madding crowd is STOOOOPID. Or it’s just bots. Or something. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [August 9, 2011, 4:28pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/65 "2011-08-09T16:28:58Z")
> [@Chefguy](#): > > Usually it’s whenever I sell. 😃 I hear that. Never fails. ---
**Author:** ![isaiahrobinson](https://avatars.discourse-cdn.com/v4/letter/i/85e7bf/32.png) [@isaiahrobinson](https://boards.straightdope.com/u/isaiahrobinson)\ **Post date:** [August 9, 2011, 4:52pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/66 "2011-08-09T16:52:14Z")
> [@Magiver](#): > > The DOW just closed under 11,000 with what looks like a large volume sell off. They’ve actually been shifting investments _into_ Treasuries though. The stock falls are nothing to do with the credit downgrade or even US debt; it’s concerns about the Eurozone problems and weak US growth. ---
**Author:** ![Northern\_Piper](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/northern_piper/32/5304_2.png) [@Northern\_Piper](https://boards.straightdope.com/u/Northern_Piper)\ **Post date:** [August 9, 2011, 6:53pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/67 "2011-08-09T18:53:16Z")
> [@MPB\_in\_Salt\_Lake](#): > > I am not too versed in macro-economics and I haven’t been paying too much attention, but I was under the impression that the credit rating would be saved from downgrade by the finalizing of the Congressional debt deal. > > Obviously, that was not the case, as S & P just downgraded the USA’s credit rating from AAA down to AA. Getting back to the OP’s initial comment, it’s instructive to read the [rationale given by S&P for the downgrade](http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DUS_Downgraded_AA%2B.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243942957443&blobheadervalue3=UTF-8): [QUOTE=S&P] • The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics. • More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011. • Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon. … 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. [/QUOTE] So yes, they raised the debt ceiling - at the very last minute, and with some elected officials apparently willing to risk a default, as part of political gamesmanship. That’s what contributed to the downgrade, even though the debt ceiling got raised. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [August 9, 2011, 8:07pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/68 "2011-08-09T20:07:31Z")
> [@Northern\_Piper](#): > > Getting back to the OP’s initial comment, it’s instructive to read the [rationale given by S&P for the downgrade](http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DUS_Downgraded_AA%2B.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243942957443&blobheadervalue3=UTF-8): > > So yes, they raised the debt ceiling - at the very last minute, and with some elected officials apparently willing to risk a default, as part of political gamesmanship. That’s what contributed to the downgrade, even though the debt ceiling got raised. Except that’s not what they said. 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. The bill didn’t provide for any real debt reduction. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [August 9, 2011, 8:12pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/69 "2011-08-09T20:12:45Z")
> [@isaiahrobinson](#): > > They’ve actually been shifting investments _into_ Treasuries though. The stock falls are nothing to do with the credit downgrade or even US debt; it’s concerns about the Eurozone problems and weak US growth. The falling stocks have everything to do with the credit downgrade just as market plummet followed the Fed’s announcement today. Stocks are now seen as more volatile given the current economic climate. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [August 9, 2011, 8:52pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/70 "2011-08-09T20:52:09Z")
> [@Magiver](#): > > The falling stocks have everything to do with the credit downgrade just as market plummet followed the Fed’s announcement today. [**Wall Street Roars Back in Wild Trade After Fed Meeting: Nasdaq Surges 5%**](http://finance.yahoo.com/news/Wall-Street-roars-back-in-rb-2330604806.html;_ylt=AnzvIGG.n11LyYM82zsUChS7YWsA;_ylu=X3oDMTE3YXM5dWRoBHBvcwMxBHNlYwNicmVha2luZ05ld3MEc2xrA3dhbGxzdHJlZXRybw--?x=0) Spin that. ---
**Author:** ![isaiahrobinson](https://avatars.discourse-cdn.com/v4/letter/i/85e7bf/32.png) [@isaiahrobinson](https://boards.straightdope.com/u/isaiahrobinson)\ **Post date:** [August 9, 2011, 8:56pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/71 "2011-08-09T20:56:44Z")
> [@Magiver](#): > > The falling stocks have everything to do with the credit downgrade just as market plummet followed the Fed’s announcement today. Stocks are now seen as more volatile given the current economic climate. Current economic climate, yes. Credit downgrade, no. In fact since the downgrade investors have been taking money out of stocks and plowing it _into_ US Treasuries - the interest rate on Treasuries has dropped to 2.4% in the last few days even as the stock market has fallen, indicating a greater appetite for lending money to the US. Investors are primarily worried about the Eurozone and about America’s growth problems (_not_ its debt problems, otherwise the interest rate on Treasuries would be rising). The market dropped after the Fed’s announcement because they essentially announced they’re not taking any new measures to boost growth at all. ---
**Author:** ![Chefguy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chefguy/32/138_2.png) [@Chefguy](https://boards.straightdope.com/u/Chefguy)\ **Post date:** [August 9, 2011, 9:18pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/72 "2011-08-09T21:18:05Z")
> [@Fear\_Itself](#): > > [**Wall Street Roars Back in Wild Trade After Fed Meeting: Nasdaq Surges 5%**](http://finance.yahoo.com/news/Wall-Street-roars-back-in-rb-2330604806.html;_ylt=AnzvIGG.n11LyYM82zsUChS7YWsA;_ylu=X3oDMTE3YXM5dWRoBHBvcwMxBHNlYwNicmVha2luZ05ld3MEc2xrA3dhbGxzdHJlZXRybw--?x=0) > > Spin that. Momentary frenzy. ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [August 9, 2011, 9:41pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/73 "2011-08-09T21:41:12Z")
Repeat after me: the stock market is not the economy, and the economy is not the stock market. Trying to read the stock market in response to S&P’s downgrade is a fool’s game. The only meaningful place to read the reaction is in the bond market, and that response was profoundly: “meh”. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [August 10, 2011, 2:55am UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/74 "2011-08-10T02:55:46Z")
> [@isaiahrobinson](#): > > The market dropped after the Fed’s announcement because they essentially announced they’re not taking any new measures to boost growth at all. yes, and this correlates to the market response to the lack of debt reduction in the last bill. People are not happy with the continued rise in debt and no plan to boost the economy. It is a toxic business environment. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [August 10, 2011, 11:38am UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/75 "2011-08-10T11:38:06Z")
> [@Magiver](#): > > yes, and this correlates to the market response to the lack of debt reduction in the last bill. How did you arrive at this conclusion? ---
**Author:** ![isaiahrobinson](https://avatars.discourse-cdn.com/v4/letter/i/85e7bf/32.png) [@isaiahrobinson](https://boards.straightdope.com/u/isaiahrobinson)\ **Post date:** [August 10, 2011, 12:00pm UTC](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665/76 "2011-08-10T12:00:05Z")
> [@Magiver](#): > > yes, and this correlates to the market response to the lack of debt reduction in the last bill. People are not happy with the continued rise in debt and no plan to boost the economy. It is a toxic business environment. Actually it’s the opposite - cutting spending also cuts growth. The market is worried about America’s lack of growth, not its debt. [Previous page](https://boards.straightdope.com/t/s-p-just-lowered-the-u-s-credit-rating-to-aa-now-what/591665.md?page=3)