Amidst all the U.S. budget talk last week, the IMF decided to weigh in by noting the U.S. lacked a “credible strategy” to handle its public debt. Now Standard & Poor’s has decided to pile it on by downgrading U.S. public debt from stable to negative. From the FT:
“We believe there is a material risk that US 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 does not begin by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns…”
Between this and the rumors of a possible Greek debt restructuring, global markets are roiling. If this turns ugly, then Fed should be ready to accommodate the spike in global demand for dollar-denominated money.