Moody’s Blues: Downgrade Deja Vu

Last Friday’s one notch downgrade of US debt by Moody’s doesn’t reveal any new information nor is it likely to induce a sustained , structural sell-off in risk assets or Treasuries. The downgrade does, however, serve as a mirror reflecting the woes of the US policy and governance that have been years in the making. Successive US presidential administrations and Congresses have continuously added to the dry tinder of fiscal precariousness. Until the markets impose discipline in the form of higher yields and borrowing costs, it is unlikely that Washington will take this recent downgrade seriously. In the near term, financial plumbing should remain unaffected and little, if any, forced selling will occur given the exceptional position of US debt.