The wsj, nyt and ft all attributing the stock markt sell off to the U.S. debt downgrade. The narrative is compelling but incorrect - and is diverting us from the real issue.
Investors began to realize early last week - days before Standard Poors' downgrade - that the economic fundamentals were much weaker than expected. At that point stocks started their slide.
The markets massively rejected Stabdard & Poors' concerns: Investors are piling into US debt - not out of it - pushing the 10 year interest rate below 2.4% (and the price, which is inversely related to the interest rate, up). We would have seen both debt and equities collapse if this selloff was about debt concerns. Falling stocks and rising bond prices are the hallmarks of concerns about a weak economy and deflation.
S&P's action may well have further increased selling pressure on equities today (Monday). But let’s not permit the wrong narrative to divert us from the fundamental issues: creating jobs, reducing household debt and revive consumer spending.
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