The U.S. has a fiscal crisis, but not the one that everyone is talking about. Standard and Poor’s proved beyond a reasonable doubt that the U.S. still has the world’s preeminent reserve currency. When shocks hit -- and investors have no idea who or what might be next in line for a downgrade -- they buy U.S. government securities.
Downgrades don’t usually have this effect. For example, if S&P or other rating companies downgraded France, that would set off a crisis within the euro region -- pushing up interest rates on French government debt, undermining euro-area banks, and perhaps putting pressure on the fabric of the European Union itself. With a one-notch downgrade of the U.S. government, on the other hand, S&P inadvertently managed to lower the U.S.’s borrowing costs, both at the federal level and for homeowners who refinanced their mortgages.
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