So investors have fled Europe for the safety of U.S. Treasurys.
The Federal Reserve has also helped blunt the impact of S&P's downgrade. Under its Operation Twist, which began last year and will continue through the end of 2012, the Fed has been selling its holdings of short-term Treasurys and buying $667 billion in long-term Treasurys, pushing long-term yields lower.
Investors also shrugged off S&P's warning because the rating agency doesn't know anything they don't. "S&P has no monopoly on wisdom," says Nigel Gault, chief U.S. economist at IHS Global Insight. "The market will make its own judgment on U.S. debt ... Ultimately, the pressure (to bring the federal debt under control) will come from the markets, not from the rating agencies."
But Gault reckons that S&P might have done some good by sounding a warning and focusing attention on the need to tackle America's debt. "I suppose (S&P) laid down a marker and perhaps made it more likely that we won't forever kick the can down the road," he says.
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