A 'Sputnik Moment' for America or S&P?

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The S&P downgrade could be seen as an inflection point in U.S. financial history, but it's too early to say which way we'll inflect. Over time, the scarlet letters AA+ could raise borrowing costs and reduce demand for U.S. assets. But lawmakers might -- just might -- seize the opportunity to make the kind of concessions on deficit that have eluded Washington in the debt ceiling debate.

And what about S&P? The credit rating agency's big bet could backfire if other AAA countries on negative watch in Europe join forces with Treasury to "downgrade the downgrader," as it were.

Pimco's Mohamed El-Erian on the weight of the moment:

The future role of rating agencies will also now come under close scrutiny, bringing to the fore the question of who rates the rating agencies? S&P's action will likely unite governments in America and Europe in an effort to erode their monopoly power and operational influence. This will also force all investors to do something that they should have been doing for years: conduct their own ratings due diligence, rather than rely on outsiders...

With America occupying the core of the world's financial system, Friday's downgrade will erode over time the standing of the global public goods it supplies - from the dollar as the world's reserve currency to its financial markets as the best place for other countries to outsource their hard-earned savings. This will weaken the effectiveness of the US as the global anchor, accelerating the unsteady migration to a multi polar system while increasing the risk of economic fragmentation...

For the sake of their country and the wider global economy, both parties should resist the urge to begin bickering. Instead they should seize this potential "Sputnik Moment" -- a visible shock to the national psyche that can unify Americans around a common vision and a renewed sense of purpose -- that of halting gradual secular decline by putting the country back on the path of high growth, job creation and financial soundness.
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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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