*How big a deal is S&P cutting U.S. outlook to negative?

Well, the Dow is down more than 200 points, and both Republicans and Democrats are using the news to stake out their positions in the debt ceiling and budget battles. So it's not insignificant. But before we get too carried away, it's worth remembering what S&P did. The ratings agency lowered its outlook for U.S. debt, not its actual rating. And need anyone be reminded that S&P doesn't exactly have a sterling record when it comes to debt projections - it gave Lehman, Bear Stearns, and Enron top ratings right up until their collapse. So why is this getting so much attention? Well, for one thing it's a slow Monday. But beyond that it's America's AAA sovereign credit rating, the most secure rating on the planet. Questioning the safety of U.S. debt feeds into the fears about the nation heading into some sort of default (still an extremely unlikely prospect). The chance of an actual downgrade, says S&P, is one in three over the next couple of years. That's being interpreted as a kind of deadline for Washington to get its act together. The WSJ's Dave Kansas says it "feels like a little shot across the bow at Washington, where politicians continue to dicker and dither while the debt and deficit rise and the debt ceiling debate nears." Most all the other reactions I've seen are pretty tepid. As for the market, it's been hovering near that minus 200-point level for much of the session, so it's not as if there's any cascade of panic. Besides, stocks have been long due for a correction. Something like this becomes a ready-made excuse for money managers to sell. By the way, there's been talk for months about S&P doing something like this.

*Dow recovers a bit to close down 140 points.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
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