Paul Krugman has the same reaction I did to the Standards and Poor "warning" yesterday: meh. I know it can be spun as an attempt to influence X (for various values of X), but the debt ceiling will not cause an immediate default on government bonds even if the Tea Party caucus blocks the hike in the debt ceiling. We'll have increasing pressure on various activities as the U.S. Treasury tries to maintain as much financial flexibility as possible.
What struck me is the way that this hullabaloo posits S&P as the arbiter of sovereign credit just a few years ago after it showed itself as hopelessly inept/corrupt. In one news cycle after a vague act of verbal puffery, it has become Very Serious. Those who are involved in education policy may want to click through that link to see who owns S&P. It is a property like any other, and its brand is Being Oracular.
Not to be HOPELESSLY cynical, but who at S&P was short-selling yesterday?
Just a thought!
The fact that the Dow Jones went up significantly should make it obvious that no really expects a downgrading of the U.S. credit rating. On the contrary–S&Ps threats are expected to provide just the nudge the Democrats need to jump on board with some of the most devastating cuts ever to social spending, exactly the kind of news that makes Wall Street cream in their pants.