NEW YORK - Stock markets have capitulated into Black Monday. Stocks are down close to 6% with Bank of America down close to 20%. Stocks have been hit hard by the illogical S&P downgrade of U.S. Credit.
Warren Buffett the legendary investor from Omaha stopped short of calling it ridiculous and said the U.S. should have a "AAAA" rating. While Buffett is concerned about the deficit he understands a nation can't default when it owes money in its own currency. Similarly a company like General Motors would have never gone bankrupt if it paid people with General Motors dollars.
Buffett and smart investors believe the U.S. dollar will likely decline over time. However every Fiat currency always declines over time. This means that the currency does not retain its value. For example a bottle of Coke may cost $1 today and only cost 10 cents 50 years ago.
The quickness of how quickly it loses its value will depend on how the U.S. handles the debt crisis but at the same time their credit rating should be deemed to be perfect. In the future creditors may want to buy less U.S. debt if they think there is a chance of the U.S. inflating their way out. But if the U.S. did such then they would have less debt and more creditors would want to borrow.
Meaning the S&P downgradwe is extremely illogical and has sent off a new panic in the markets sparking today's black Monday. The S&P downgrade has had little affect on U.S. treasuries and treasuries have moved lower.
The downgrade has sparked market calamity fearing U.S. default yet a paradox on the other side is that the U.S. dollar is rising and U.S. Treasury yields are declining.
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