The big story this weekend was, of course, the S&P downgrade of US debt. But there’s another story worth talking about – The incredible writing that this development has brought out from some of the finest market commentators who’ve ever done it.
In this post, I want to highlight some of the people who’ve really captured the gist of what this all means and may mean and should mean for the benefit of our readers. Bravo, you guys!
Dan Alpert asks what right S&P has to question our ability to pay the debt:
The size of the U.S. economy, the wealth of its inhabitants and the assets of the sovereign entity itself, are unquestionably more than adequate to repay, with interest, all of the $14 trillion or so of the nation’s debt (much of which, by the way, is owed to itself)…and then some. Anyone with a rudimentary understanding of finance and economics can figure that out.
Jeff Carter explains what the move by S&P means for you and I in real life:
1. The cost of government borrowing just went up, that includes states and munis too. This adds to your tax burden.
2. Higher government borrowing costs filter through the economy. It makes it slightly more expensive for corporations to borrow money. This is a drag on GDP.
3. Higher corporate borrowing costs filter down to consumers-the cost of some consumer loans might be slightly higher.
4. Puts a lot of political pressure on elected officials to actually cut the budget. We need to get back to a more traditional GDP/debt ratio. Once that’s done, why wouldn’t S&P take us back up to AAA?
Barry Ritholtz asks the most unanswered question surrounding all of this debt stuff:
The change in trajectory of US debt was in service of Banks: It began with TARP, and continued with every other bailout/stimulus/economic plan. What was S&P’s role in creating that crisis?
Fightin’ Joe Donahue on how to play the market reaction this week:
Friday’s headline will create some issues for sure, but this was no surprise. If we have a massive sell off on Monday (which I hope is the case), I will leverage my kids and get long for the rally. I will trade that rally and then look for shorts (which shouldn’t be chased here). Why? Because market bottoms rarely end with days like Thursday, and I don’t think we have seen true capitulation in the market yet. A massive flush needs to occur in my opinion for me to make long bets again for any duration more than a day or two. The trend is broken and charts have been decimated. We are back to “trading the tape” again and if you are a novice or a beginner, it’s probably a good time to take that vacation you have been thinking about.
The Fly, ever playing the contrarian:
All in all, in my opinion, it is a NON-EVENT.
The real story is still in Europe. Don’t let this downgrade shit distract you. The ECB needs to start monetizing their debt now, else world markets will continue to slide. Providing a deal is announced by Sunday, I expect a patriotic “fuck you S&P” rally on Monday.
It’s the American way.
David Merkel cuts through all the opinion and gets straight to the facts:
The thing is, politics matters. If we have a fiat currency, then it is politically driven. If our politics with respect to debt repayment are unstable, then we don’t deserve a AAA.
But much as I don’t like the t-party, I do not blame them for this outcome. I blame Obama, Bush, Clinton, Bush, Reagan, Carter, Nixon, Johnson, Kennedy, Eisenhower and CONGRESS. They have overspent. They have created many useless programs. They have created burdensome programs, they have turned medical care into a zoo of red tape. THEY HAVE NOT CARED FOR THE FUTURE OF THE NATION, BUT ONLY THE PRESENT!!
I’m guessing there will be much more excellence to come tomorrow, nicely done everyone!