Has the sky fallen?

No, but the bottom seems to have dropped out of the stock market. Market reaction to the last minute resolution of the self-induced US debt ceiling crisis and S&P's downgrade of the US from AAA to AA+ status (yes, it's spawned bad battery jokes) serves to remind how vulnerable exchange rates, stock prices and capital flows are to confidence. 


To my mind, the key phrase in S&P's announcement is this one:

"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011."