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Aug 6, 2011 11:33 PM by Stephanie Collins

Economists say U.S. credit downgrade not as bad as thought

WASHINGTON (AP) - The Standard & Poor's downgrade of the U.S. credit rating is casting new doubts on the value of the U.S. debt-limit deal.

The credit rating agency says it was cutting the country's top AAA rating by one notch to AA-plus because the deficit reduction plan passed by Congress did not go far enough to stabilize the country's debt situation.

As to the downgrade itself, economists suggest it might not have much actual impact, noting that the credit ratings of Japan, Canada and Australia had also been downgraded in recent years with few economic consequences. And in the past few days, investors have been fleeing stock and commodity markets for the perceived safety of U.S. Treasury bonds and bills.

Mark Zandi, chief economist of Moody's Analytics, says "Investors have voted and are saying the U.S. is going to pay them." Zandi says despite the S&P downgrade, "U.S. Treasurys are still the gold standard."

Zandi notes that neither his parent organization, Moody's, nor Fitch, the other of the three major rating agencies, has downgraded U.S. debt.

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