Downgrade madness

The Stock markets are falling, in the aftermath of S&P’s downgrade…and people are rushing to…

Treasury Bonds.

That’s pretty odd, given that the fears were originally a default on the part of the US, but there are two reasons for this, in my opinion.

 

1. The US is the only game in town.  The Euro is moribound with ever more bad news coming out of member nations.  It’s not just Greece any more, it’s Spain and Italy and nobody has a clue how far the contagion may go–or whether or not the more healthy members, such as Germany will continue to support the unhealthy members. Not being able to pay because congress is acting like a bunch of five year olds is bad– but better then not being able to pay because you have no money in the bank.

2.  Our debt isn’t that bad.

Contrary to the tea party hysteria, the US debt isn’t that bad– letting the Bush tax cuts expire would go a long way towards fixing it, and that would still leave us far below or traditional tax rates, even when you consider how bad they were under such noted Commies, as Ike and Nixon. In other words, and this is related to 1. it’s not that the US doesn’t have the ability to deal with the debt, it’s that we currently don’t have the will.  But the Market is, I believe considering the fact that at this point, if crunch time hits, we can deal with our debt problems and thus a real, as opposed to political, default remains outside of the realm of probability.

 

Oh, there’s another point– if the US collapses, the entire global economy goes down with us– so it’s also likely that investors realize that if the US bond market collapses, it’s not like the money you’re losing will mean anything.

 

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