It’s the first time S&P has lowered its confidence in America’s ability to pay back its debt since Pearl Harbor. But beyond the banter of politicians and a 200 drop in the Dow Jones Industrial Average, economists aren’t too worried.
One economist even burst out laughing on hearing the announcement.
In addition to S&P’s not so sterling record, here are five reasons economists say this isn’t as bad as it sounds:
1) S&P lowered its outlook for U.S. debt, not its actual rating.
2) The U.S. prints its own currency when it needs it.
3) Congress already announced its own gridlock over the debt issue weeks ago.
4) The dollar actually strengthened after the announcement.
5) The chance of an actual downgrade is one in three over the next couple of years, which means it’s more of a deadline for Washington than an actual downgrade.
As our own Ezra Klein said it: “Since Congress seems to be doing everything in its power to undercut the market’s opinion of America...S&P got seriously scooped on this story.”