Moody’s Downgrade of the U.S.: What the Markets Say vs. What You Should Watch

Moody's has issued a warning to the United States, yet no one appears to heed it. Bond rates changed little at all. Stocks were constant. The dollar was not flexible. In a market where political deadlock has become institutionalized and government debt approaches the next big figure of $40 trillion, is collective indifference the wise answer or a risky one?Citing the nation's worsening fiscal situation and the growing likelihood that political dysfunction will hinder a realistic long-term budget strategy, Moody's changed its assessment of U.S. sovereign debt last week to "negative." This decrease matches the norm set by S&P back in 2011 and reflects Fitch's comprehensive downgrade in August.

While news traveled fast, seasoned investors know better. Although ratings agencies do not control market pricing, they do provide warnings. This one is also shining brilliantly. This signifies a shift in the system, not just a credit issue, as trust in the global reserve currency issuer begins to erode.