Downgrading for the first time the rating of the United States from AAA could generate turbulence on the market, for the next days, but it will remain in history as moment in the chronic decline of the U.S. economic power, according to analysts contacted by the Wall Street Journal (WSJ).
U.S. chief economist at the research firm Capital Economics, Paul Dales, said that the markets could have an “adverse reaction”, but soon will a look at the economic data, which are “not great”.
“The loss of AAA rating of U.S. is the clearest sign so far that the consequences of the global financial crisis will be felt for many years”, he said.
The timing of Standard & Poor’s downgrading the U.S. credit has surprised some market participants and closed a turbulent week for global markets, but some observers noted that the decision of S & P could be anticipated in recent weeks, during the bickering in Congress on the debt ceiling.
Springer Financial Advisors President, Keith Springer, said that the decision announced Friday night by S & P “was not even a surprise to markets that already had taken into account the threat of relegation, hence the drop last week”.
Janet Tavakoli, an independent credit analyst and old critic of the major rating agencies, S & P, Moody’s and Fitch, said that reducing the rating of the U.S. came very late, downgrading it with just one step to AA+, does not reflect the real situation of the country.
As to the reaction of markets, Dales expects the S & P 500 stock market in New York to remain at current levels, around 1,200 points, while U.S. Treasury bonds yields will remain around 2.5%.
Few investors are required to hold only bonds rated AAA and those in this situation will not have problems as Moody’s and Fitch still keep the U.S. at a triple-A, he notes.
In addition, the Federal Reserve announced Friday night that S & P’s decision will not affect the capital requirements for U.S. banks, thus limiting the possible consequences of the commercial banks and savings banks exposure.
Director General of Ycmnet Advisors San Francisco, Michael Yoshikami, does not anticipate “an important impact”, at least in the short term.
“When the panic in the world is triggered panic, where do investors flee? To the treasury titles, and we’ve seen that in the last week”, he commented.
Even without the AAA rating from S & P, the treasury titles should remain a very safe bet for investors, banks and financial institutions around the world seeking refuge. Although some investors sought to buy gold and bonds issued by companies and countries whose AAA ratings are not under threat, the markets of these assets are not nearly large enough and deep as the Treasury titles, guaranteed by the U.S. Federal Agencies, analysts note.