Although I no longer watch cable news no matter what the ideological bias of the network, I am sure the culprit of today’s 600 point loss in the DOW is being laid at the feet of S&P’s downgrade of the U.S. Credit Rating. But as Steve Benen points out, a stubborn little fact makes that assertion untrue:
The whole point of the Standard & Poor’s downgrade was to cast doubt on U.S. debt, given the political instability caused by unhinged Republicans. And the first trading after the S&P downgrade, anxiety-ridden investors turned to … U.S. debt.
David Frum agrees:
The bond market has reacted to the S&P downgrade of US debt with a big rally in US Treasuries. As I write, the US government can borrow money for 10 years at about 2.3% and for 2 years at under one quarter of a point. The market wants to buy, buy, buy US debt […] What the market wants to sell are stocks: ie, claims on the future earnings of private-sector companies. In other words, the market is saying: We fear recession and deflation. The Washington consensus is that we need to fight debt and inflation. It’s utterly upside down, utterly perverse.
Yes, U.S. Treasuries were bought today, rather than sold. If the downgrade was the reason for the sell off, then the first thing to be sold would have been U.S. Treasuries. The only thing I hate about the stock market, and the main reason I avoid investing in it too much, is the rampant fear that drives the market on bad days. On days like this, when I see a trader, all I see is a scared little child.