How markets responded on Monday morning to the S&P downgrade

“S&P doesn’t know anything investors don’t know already…” is how Martin Feldstein of Harvard described the market’s possible Monday reaction to S&P’s downgrade of US debt on Friday night.  And indeed, the yield on 10-year Treasuries dropped on Monday morning from 2.56 percent to 2.47 percent, a sign that Treasuries are still a hedge against riskier investments in equities.

The Wall Street Journal’s opinion: they aren’t admirer’s of the credit ratings agencies (since ratings agencies don’t make distinctions among policy actions and their impacts, but just look at the balance sheet), yet the editors stress it’s important to not, “shoot the messenger.” Debt as a percentage of GDP has, and will continue to rise, dramatically.

The future is far from bright. According to Vernonique de Rugy without any policy changes debt held by the public will rise from $9.7 trillion (69 percent of GDP) this year to $18 trillion in 2021 (a mere decade from now).

de Rugy uses the CBO’s own data to chart the picture.