S&P downgrades U.S. credit rating

August 8th, 2011

Markets continued to fall sharply today following Standard & Poor’s downgrade of U.S. debt, lowering the credit rating from AAA to AA+. S&P continued their downgrades by lowering ratings for Fannie Mae, Freddie Mac, and several Federal Home Loan Banks. Boston University economics professor Laurence Kotlikoff weighed in with his view of S&P’s move to lower the U.S. rating. Speaking to the Boston Herald, he said:

“You add it all up, our bond rating shouldn’t be AA+, it should be CCC at this point. I’m not kidding…It’s a scary mix of ingredients…If the market drops any more, this could lead to a double-dip. At some point, all hell can break loose on our bond market. If people realize how broke the country is, they may start dumping bonds. This could be a catalyst and interest rates would shoot up. Bank assets would drop and banks would start to fail. People might panic and take money out of their money-market accounts.”

Interviewed on NPR’s “All Things Considered,” Kotlikoff added, “We’ve consistently done too little too late, looked too short-term, said the future would take care of itself, we’ll deal with that tomorrow. Well, guess what? You can’t keep putting off these problems.’

Kotlikoff is an expert in macroeconomics and fiscal monetary policy. He is the author of “Jimmy Stewart is Dead: Ending the World’s Ongoing Financial Plague With Limited Purpose Banking.” He is also a regular contributor to Bloomberg. He can be reached at 617-353-4002 or kotlikoff@bu.edu

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