Ratings agency Standard & Poor's has cut its outlook on the U.S.'s AAA debt rating, a move that really isn't all that earth shattering since the problem is solvable over time, says Nobel economist Paul Krugman.
The agency downgraded the outlook to "negative," warning that policymakers must agree on a way to ease the country's budget deficits and national debt.
While the move is good in that it will hopefully end political gridlock in Washington, it doesn't really matter since the U.S. can manage its finances without rushing to narrow deficits first, Krugman writes in his New York Times column
"The point should be that the U.S. is perfectly capable both of running large deficits now and getting its fiscal house in order over time; but not if the parties cannot agree on any kind of solution. What we do to spending this year or next is irrelevant," Krugman says.
"Like I said, no big deal."
Japan saw its debt downgraded in 2002, although hikes in interest rates there — moves that are often necessary to keep bondholders investing in a country coming back — never occurred.
S&P says there's a one-in-three chance that it may live up to its warning and cut the rating, but adds its "baseline assumption" is that Congress and the Whitehouse will agree on a plan to reduce record deficits.
"For most investors there is nowhere else to put their money as the U.S. still has the strongest, deepest, most-liquid markets in the world," says Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, according to Bloomberg.
"There is no alternative."
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