Thursday, July 28, 2011

How does the debt crisis of this country created change through S&P

The recent S&P downgrade is just another excuse for foreign countries to call attention to America's problems, but the weaknesses have already been apparent for a while, says Francis Warnock, an international finance professor at the University of Virginia and fellow at the Council on Foreign Relations. "The downgrade is important mainly for anyone who wasn't paying attention the past year. The Chinese and Russians understand our problems and weaknesses. They don't need S&P to tell them. They'll use it to further chip away at our credibility, but we've made that very easy for them," he says.

Some governments such as Germany and Australia have stronger credit ratings than the United States following Friday's downgrade to AA+ from AAA. But they don't sell enough debt to absorb the mountains of cash that China, Japan and others stockpile. Shifting money to stocks might offer a better return but can be politically volatile — and high risk as current market turmoil shows.

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