World markets respond to US credit downgrade
The European Central Bank’s purchase of Italian and Spanish bonds and the Group of Seven statement that its member nations would work together to ensure liquidity prompted early improvements, but did not seem to be enough to prevent overall losses, The Wall Street Journal reports.
With luck, [the downgrade] will spur US policymakers to act more responsibly and intelligently in confronting the country’s long-term fiscal challenges. On the other hand, it may raise bond yields and stir exaggerated alarm at a time when economic confidence in the US and Europe is low, for good reason, to begin with. …
Where S&P is right, however, is in stressing the new danger that the US government might actually choose not to service its debts – the brink of voluntary default that Washington blithely walked up to during the debt-ceiling pantomime. This precedent is set and cannot be undone. Congress should act to guarantee that this episode will never be repeated. The law creating the debt ceiling itself needs to be repealed.