News that credit rating agency Standard & Poor’s has changed its outlook on U.S. long-term debt to “negative” has sent the Dow down over 200 points this morning. The U.S. still maintains its AAA rating for now but the negative outlook means that S&P feels there is a 1 in 3 chance that the rating will be cut in the next 2 years. In their official release, the S&P said,
“We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”
To anyone familiar with Austrian Economics, this news is akin to hearing that the Earth is round but it is significant none the less. This change in outlook signals that mainstream economists are starting to wake up. Many of these are the same folks who championed the Fed’s quantitative easing programs and congressional bailouts not too long ago. This is a good sign, some seasoned pros like Mark Rubino are calling this a “great party” that will result in a “hangover of epic porportions” and laying responsibility at the feet of Bernanke and Obama – though we might like to add Greenspan, Bush, Congress, etc. to that list.