Okay so, Standard & Poor's has lowered the federal government's credit rating, and the credit rating on US treasuries. Indeed, the market has responded, and it seems that the investor doesn't care that these securities are no longer Triple-A, now AA plus, because everyone around the world is continuing to buy them. In fact, the stock market took a hit due to the downgrade, along with the simultaneous challenges in Europe with sovereign debt. This triggered a global selloff, and what happened?
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Simple, as the other stock markets around the world got hit hard, all of that money came flying into the US looking for a safe haven, where the investors wouldn't lose their money. And of course they bought US treasuries because they are considered safe. Perhaps what S&P is saying is that nothing is safe anymore? Well, was anything ever safe in the first place, or was everyone just kidding themselves. This isn't to say that the S&P downgrade doesn't affect stocks, bonds, and options - surely it has an effect.
There was an interesting article not long ago in the Mercury News (San Jose, CA) on August 8, 2011 titled; "S&P downgrades rating of entities linked to government debt," written by Daniel Wagner and Martin Crutsinger (Associated Press). The article stated;
"S&P also lowered the ratings for: farm lenders; long-term U.S. government-backed debt issued by 32 banks and credit unions; & three major clearinghouses, which are used to execute trades of stocks, bonds & options. The downgrades were from Triple-A to AA+, reflecting the same downgrade S&P made of long-term U.S. government debt. The downgrade of the mortgage giants Fannie & Freddie reflected their "direct reliance" on the U.S. government. It applied only to corporate bonds, not the mortgage-backed securities that Fannie & Freddie issue."
Now that the federal government has said that it will live within its means, and cut down its budget, many of those corporations which rely on the government for their sales, such as defense contractors and what have you took a fairly large hit. Some say that's only temporary, because humans aren't about to stop having wars, nor is the United States about to stop protecting itself, nor should we. It's a crazy world out there, and we must protect our nation, because it is the greatest nation ever created.
Obviously, if there are other government sanctioned organizations out there with credit ratings, they will obviously be hit also, as they are completely subjected to, and linked to the credit rating of the United States, and if the US stops paying, they also will default. Indeed I hope you will please consider all this and think on it.
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