S&P Downgrade

Lessons of Lower Ratings

Regarding S&P’s decision to downgrade the U.S. credit rating, the Wall Street Journal’s article Lessons of Lower Ratings provides an historical perspective of how other countries have performed after a cut in their credit ratings. As discussed in the article, history suggests the recent downgrade could actually be a long-term positive for the market if it prods our government to finally make significant fiscal reforms. On the short-term, S&P’s decision to lower the U.S. credit rating creates a great opportunity for the media to sell panic and for politicians to grandstand. But looking beyond today’s headlines and political rhetoric, we must keep in mind that credit ratings are simply opinions. These opinions are often terribly wrong as we have seen in recent years with AAA rated investments that lost all of their value.

As times will always be uncertain, no one really knows how the stock market or the economy will perform on the short-term. But if history is any guide, our economy should continue to grow over the long-term and we will eventually get our fiscal house in order. This is not to say our country will make the right financial choices quickly, but I believe we will eventually do what is necessary to remain prosperous. To quote Winston Churchill, “The Americans will always do the right thing, after they have exhausted all the other possibilities.”