The media coverage of the S&P downgrade was utterly dreadful. Markets did not fall on fears over US debt. If they had then the price of this debt would have fallen. It rose. Instead markets fell because the S&P downgrade makes the political case for more austerity seem stronger (hand in hand with the dreadful media coverage), this makes expected growth (even) lower which hits stock markets and makes government debt seem like a good investment.
The best commentary on the subject can be found at:
Exactly, exactly & exactly.
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