Friday August 5, 2011 will likely be remembered as "the NEW Black Friday" or "THE" Black Friday. On that day, after markets closed, Standard and Poor's (S&P) fulfilled its previous warning and downgraded the sovereign credit rating of the USA to AA+ from the fifty-years-old AAA.
On Monday the 8th, the stock market took a tremendous dive in excess of 6% and all the pundits and talking heads blamed it on S&P's downgrade. Clearly, the downgrade came in handy to justify the selloff of Monday, but doesn't explain the drop in stock market indexes since late July.
An important point to keep in mind is that what is in doubt by S&P is the capacity of the U.S. to face its debt obligations given the high probabilities of increases in the stock of debt (the only way to fund the fiscal deficit, implemented so far.) That is what the sovereign credit rating means: evaluation of the government (sovereign authority) to pay interest and amortization of the bonds...
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