Hi tkc,
What I am saying is that we don't actually have a Platonic perfect AAA rated type of debt. There is no absolute. There cannot be. Value is not intrinsic. So credit rating is a relative measure. Practically-speaking, AAA means the most credit-worthy kind of debt available in the marketplace. That will be the US government regardless of whether S&P rates the US AAA or BBB.
So if US government debt is the fixed point and all debt relationships are linear, then when you lower the US credit rating, essentially you have to lower the rating for everything else.
Will the US have to pay higher interest rates as a result of the S&P downgrade. I think buyers will ignore it. There will still be no more robust form of debt available to purchasers.
If the US defaults, then I think that will have an impact. But I don't see how S&P can make a difference. If anything, in the turmoil which I expect as a result of a default - perversely - I think people will want to purchase US debt as the most robust kind of asset available. Gold would also likely sore. Crazy world we may be entering.
Following my own logic, here's my solution. Forget the grand bargains and don't worry about S&P. Just raise the debt threshold.
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