For the first time since Pearl Harbor, Standard & Poor's has downgraded their vote of confidence in the U.S. government's ability to pay back their debt. The shift from "stable" to "negative" sent stocks in a tailspin yesterday and politicians scurrying to draft the appropriate response today. Why so pessimistic? The Wall Street Journal quotes S&P's John Chambers blaming "the sign of political gridlock" between Republicans and Democrats.
But some of the United States' chief creditors aren't so worried. Japan, the second largest holder of U.S. government debt with $1.13 trillion worth of bonds, expressed faith in President Obama and said that Treasuries remained "an attractive product" for them. Officials in South Korea echoed the sentiment saying that U.S. fiscal problems are nothing new, and the news wouldn't affect how they invest. Ditto for India.
China, which holds more than $1.1 trillion in U.S. treasury bonds, has stayed mum on the issue, though. With inflation at a three-year high in China and some economists speculating that the U.S. assets may be a cause, the news certainly rang some alarm bells in Beijing. Should China decide to shed bonds, American markets could take another blow.