Any panicked calls to your broker yesterday? Dumped any assets at market price to purchase gold? No, I bet you didn’t, nor did anyone I know. Business as usual, or as much as usual, watching from the sidelines as the markets ticked downward.
What’s unfortunate is the effect that the S & P downgrade of US sovereign debt had on shaky world markets, imperiling a fragile economic recovery. The operative word, though, is ‘recovery’, and all those of us in business have felt it. And anyone in business can, if they’re paying any attention to more than just the day to day, use their own business as a paradigm. Revenue is the most obvious measure, but product sales start with buyer interest, and that’s markedly improved over last year. Mind you, we cautiously husband incipient sales, because it had heretofore still been easy for a client to say ‘no’. But, then, I haven’t had any pending sales cancelled outright the result of what’s gone on over the course of the last three weeks, but doubtless the cash conversion cycle has now lengthened.
The forest of finger pointing has mercifully not occluded reasonable discussions about the downgrade. The most cogent, expressed by Paul Krugman, was that nothing in the US economy had changed. The received wisdom that political gridlock in Washington that led to a laggard agreement on raising the ceiling for sovereign debt was somehow indicative of a lack of will on the part of the government to get its financial house in order does not, in Krugman’s view, wash. Nor does it in mine. The US remains the most important, most productive economy in the world, and the safest of safe harbors for investment. Moreover, a debt deal was reached- as we knew it would be- and the US, despite the stylized posturing on all sides that I’ve heard compared to kabuki theatre, remains a beacon of political stability. The question has been asked of S & P amidst this how reliable their ratings can be considered given their investment grade ratings on the subprime mortgage funds, the collapse of which, we all recall, precipitated the morass from which we are slowly emerging. The question’s been asked, but has S & P answered? Not that I’ve heard.
More common sense from Paul Krugman at: