International stocks drop on news of US downgrade

International stocks are at an 11 month low as the world reacts to the downgrade of US sovereign debt. Despite hopeful economic news from Europe that the European Central Bank was buying Italian and Spanish bonds, the headlines have been dominated by the darkening economic news from the US. To put the matter in perspective, some $2.5 trillion in value has evaporated in the wake of the US credit downgrade.

LOS ANGELES (Catholic Online) - President Obama has reacted to the news by holding press conferences and giving speeches to defend the debate and debt deal that has promised tax reform and spending cuts in an effort to assist the economic recovery in the US. "My hope is Friday's news will give us a renewed sense of urgency," Obama said in response to the debt downgrade. Meanwhile, international stock exchanges posted sharp declines and gold reached a new record above $1,700 an ounce.
 
International investors are seeking safety as stocks move downward and the future remains uncertain. The debt downgrade means the US is no longer the safe investment that investors have previously taken for granted. As investors pull out of the United States, officials are quick to do damage control. John Dobosz, deputy editor of Forbes Magazine explained, "Today's been a horrible day for US stocks - a crushing blow, but our credit is still very good."
 
Much of the move to safe-haven investments, such as gold, is a result of uncertainty about the future of US sovereign debt. While the US nearly defaulted on its obligations last week, few believe that the US would actually tolerate a long-term default. Still, the US has substantial debt, a sluggish economy, and may find it necessary to deficit spend its way out of the current recession, in the very face of promises to cut such spending. Worse, the impact of the recent credit downgrade is entirely unknown since the US has never been downgraded before - few people can predict how the downgrade will play out in the larger scheme of things.
 
To be fair, international markets are losing ground because of additional problems, particularly in Europe where Greece and several European banks are in severe financial danger. But the United States, commanding an economy larger than much of Europe combined, is the prime factor behind the recent losses in the international markets.

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