On the sober, serious side, Salmon has some good comments on the situation. The US remains the richest country in the world, with very low tax rates compared with other industrialized countries. But the political risk of default is
BREAKING! MUST CREDIT... just about everyone. Okay, here's some text from S&P's release:
We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process.Heh-indeedy. Unfortunately, the rest is worse. But that's not surprising, as the way S&P inserted itself in the debate to begin with showed that it was clearly on one side. The release as whole is basically a continuation of their pressure to act in a certain way.
Added: Krugman weighs in with a somewhat harsher view of S&P than Salmon.
Added: Drum thinks the risk of actual default was and is remote. I used to think that, but I no longer believe that the Teahadists are under anybody's control.
Added: Here's a good post on why the practical effects of a downgrade - even by all three agencies - are likely to be minimal. I largely agree, though I would qualify it with "in the short term" more explicitly. Another qualifier that I would add is "provided nothing bad happens elsewhere." A breakup of the Euro would send investors piling into any US asset, especially Treasuries, driving down yields sharply.