The S&P Downgrade of U.S. Debt is Over-hyped

The news media has been making a big deal about the S&P downgrade:

1. The republican candidates are trying to take advantage of it.

2. Yesterday's stock market decline was blamed on the downgrade.

3. CNN had a psychologist on about how people's esteem would be affected.

4. Someone on TV said in 20 years, we will ask "where were you when the U.S. was downgraded?"

The truth, as Paul Krugman has stated on his blog, is that a tarnished ratings firm was quick to downgrade the U.S. - possibly for political reasons, since they botched the numbers.

The downgrade isn't justified because AAA rated countries like France have more debt per GDP and, because borrowing costs are so low, the U.S, could take on another $1 trillion of debt and future debt servicing cost growth would be negligible (0.07% GDP).

On Monday, the market rejected the downgrade because treasury bonds went up. No matter what S&P says, the world knows that U.S. treasuries are the safest and most liquid investment.