The stock market continued its free fall today after S&P downgraded the US’s creditworthiness on Friday from a triple A rating to AA+. You may recall a blog post my friend and favorite economist Xuan posted here. She argued that the US cannot default on its debt because it can print more money.
She asked me to post a video of an interview with former Federal Reserve chairman, the “saintly” Alan Greenspan, when he appeared on NBC’s Meet the Press. Mr. Greenspan was the ” the longest serving Federal Reserve chairman and the former darling of laissez-faire economics.”
During the interview, he says, “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default,” when asked if US treasury bonds are still a safe investment.
David Beers, the global head of sovereign ratings at S&P, did an interview in which he hedged his bets. Even though the US rating was downgraded, “the credit worthiness of the United States government, in our estimation, remains very strong — it’s just slightly less strong than it was.” Okay, did you get that? The rating is still strong, just slightly less strong.
So why is the stock market reacting so negatively to the S&P downgrade? More than likely, it has to do with confidence in investors. Although, to be honest, the only people who care about the stock market are those who actually own stock, which by my estimation is still probably a small minority of the US population–much like how most of the wealth is concentrated in the hands of a handful of people.
One major critic of the S&P downgrade is Berkshire Hathaway chairman Warren Buffett who said the US rating downgrade “may change my opinion of the S&P.”