This week’s news really began last Friday, when Standard & Poor’s announced that it was downgrading the United States’ AAA credit rating. Over the weekend commentators anxiously deliberated what the unprecedented move really meant and what its impact would be. (Not a big deal, said some. S & P overcompensating for its role in the 2008 crisis, said others. “Disaster,” pessimists warned.)
Monday’s markets’ plunge—the Dow Jones plummeted 634 points—seemed to validate the pessimists, but few thought the downgrade alone was responsible for the market sell-off. Ongoing concerns about U.S. economic growth and European debt also contributed. Would France be next to see a ratings downgrade? How vulnerable were Italy and even Germany?
And had our policymakers failed us? Economist Michael Spence argued that the economic turmoil was the result of policymakers playing politics; Brad DeLong insisted that it was due to the exodus of economic heavyweights from the Obama administration.
The Economist decided that the Fed had to act to stave off the crisis, but after the Fed announced on Tuesday that it currently anticipates keeping interest rates at current levels “at least through mid-2013,” financial observers couldn’t decide whether that was “momentous” or less than impressive.
Investors reacted predictably to the market upheavals, either standing pat or searching for perceived safe havens. But where were they? In China? Gold? Companies with cash? Or—ironically—U.S. Treasuries?
Reuters blogger Felix Salmon, meanwhile, insisted that for long-term investors, all this was nothing to worry about. “The stock market,” Salmon concluded, “is not a place for money you’re likely to need any time soon.”