S&P Breaks Ranks
So, after the U.S. stock market was safely closed yesterday at the end of a tumultuous week, Standard & Poor’s did the deed: it cut its rating of long-term U.S. debt from Triple-A to Double-A.
Its competitors, Moody’s and Fitch, are likely to follow in short order, much like gas stations or airlines quickly match what their competitors are doing.
Housing and lending experts expect the downgrade to raise the government’s borrowing costs, which normally would also drive up mortgage rates. See, “Debt Ceiling Debate and the Housing Market.”
However, one of the ironies of this whole muddle is that anything that shakes investors’ confidence sets off a flight to safety, which drives rates down (noted in my previous post, “Mortgage Rate Mea Culpa“).
It’s all got an “Alice in Wonderland-thru-the-looking-glass” quality to it, if you ask me.