Maybe The Credit Downgrade’s Not Such A Downer After All?

The Boston Globe published a piece today by AP Business Writer Stan Choe.  Here’s the gist of it:  No one really knows how the US credit downgrade’s going to affect Wall Street.

“The Dow Jones industrial average fell more than 250 points minutes after the opening bell on

Stan Honda / AFP/Getty Images

Confusion continues on Wall Street today following the downgrade of US credit.

Wall Street. It recovered some of those losses, then fell again and was down as many as 375 points in mid-morning trading. At 11:30, the Dow was down 284 points.”

As Choe points out, S&P didn’t announce its downgrade of US credit from AAA to AA+ until late last Friday.  So investors have had the weekend to stew on what their first reaction was going to be today.  And the news gets worse:

“In other midday trading on Wall Street, the S&P 500 index fell 35 points, or 2.9 percent, to 1,165. The Nasdaq composite index fell 78 points, or 3.1 percent, to 2,454. The Dow was at 11,169, down 2.4 percent. The S&P 500 is already down 10 percent so far in August. If it stays down just that much, it would be the worst month for the index since February 2009.”

Gold–the investor equivalent of storing money under your mattress–shot up above $1,700 an ounce in response to faltering markets in the US, Europe, and Asia.

But surprisingly, the news isn’t all bad.  Oddly enough, the one bright spot in the markets today is actually…US creditAlso known as the investment that upset world markets after S&P said it’s an iffier choice to park your money than British or French debt.

“Prices for U.S. government debt rose — even after S&P essentially said they were a riskier investment than the debt of some other major world economies — because Treasurys are still seen as one of the world’s few safe havens. Prices rise as demand increases.

The yield on the 10-year Treasury note fell much of the morning, to 2.38 percent from 2.57 percent late Friday. A bond’s yield drops when its price rises. The 10-year note’s yield fell as low as 2.06 percent in 2008.”

Moody’s stands behind is continued AAA rating of US credit.  And, incidentally, credit rating services are now taking a closer look at British and French credit ratings.

So it’s still an open question how the downgrade will affect the larger US economy, let alone that of individual states like New Hampshire.  It will be interesting, however, to note the effect of downgraded debt on US currency valuation, and how that, in turn, affects NH’s export economy and the cost of borrowing for businesses and homebuyers.


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