One result has been big volatility in the financial markets. For example, the Dow Jones Industrials plummeted by 635 points on Monday, August 8, with the market then climbing back by 430 points the following day.
But what does the downgrade say about what entrepreneurs, small businesses and their employees have to deal with in terms of the economy?
The bottom line is that the high level of uncertainty that businesses and investors have been wrestling with for nearly four years now promises to continue. Just on the downgrade issue itself, who should be believed – S&P that downgraded, or Moody’s and Fitch who did not?
S&P’s downgrade was sparked by the rating agency looking for a debt deal that would have imposed $4-trillion restraint on the projected increase in federal borrowing over the coming decade. The eventual debt ceiling agreement came in a bit over $2 trillion.
But what does that even mean? After all, beyond the current Congress, long-term budget deals do not really mean much unless they include some kind of institutional or constitutional caps on spending. Such caps were not included in this agreement...
Read the rest of this SBE Council Cybercolumn by chief economist Ray Keating here.