The bond downgrade is not responsible for the Stock Market tanking

I’m so not an expert on Wall Street, but I’m pretty sure it takes only a intelligent layperson’s familiarity with finance to get this.  I guess it’s asking too much to expert financial journalists (or at least their headline writers) to be an intelligent layperson.  I’m also smart enough to know that you’re probably best to just listen to Krugman on a purely financial issue like this.  And:

Carnage in stock markets as I write — and all of the headlines I see attribute it to S&P’s downgrade.

They really are trying to make my head explode, aren’t they?

Once again: S&P declared that US debt is no longer a safe investment; yet investors are piling into US debt, not out of it, driving the 10-year interest rate below 2.4%. This amounts to a massive market rejection of S&P’s concerns.

The “signature” of debt concerns should be stock and bond prices both falling; what we actually see is those prices moving in opposite directions. And that’s normally the signature of concerns about a weak economy and deflation risk (see Japan, decline of).

That’s really not that complicated.  Sure, I expect this from Fox News, but I expected better from the Post and Times (and least they’ve stopped blaming S&P on their homepage at last check– though they were earlier).

 

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About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

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