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Local economists: Don't panic over downgrade

ALBANY, Ga. -- For the first time in history, U.S. Treasury Bonds have lost their perfect rating, and the fall is more than a small concern among investors and -- on the face of it -- the international stock and bond market.

Standard & Poor's, one of three major "rating" agencies, recently lowered U.S. Treasurys from their perfect AAA rating to AA+.

According to S&P, the agency acted out of concern for the high rate of U.S. debt and the perceived difficulty congress has experienced in raising the nation's "debt ceiling."

In theory, the downgrade could cause a substantial rise in interest rates on everything from credit cards to cars and homes.

Vic Sullivan, branch manager for Wells Fargo Advisors on Westover Road in Albany, said he believes the world at large has no real investment alternative to the high-value U.S. Bonds and that the market will soon stabilize.

"They (the bonds) are up today," Sullivan said. "Treasury Bonds remain a safe haven for funds around the world. They are the most established sovereign debt market in the world."

Aaron Johnson, an assistant professor of economics at Darton College, agrees.

"The market is overreacting," Johnson said, "In itself, the downgrade won't cause a rise in interest rates. That will only happen if bond demand decreases, and I don't see that happening. What are the alternatives to American sovereign bonds? We'll be okay."

Johnson says he has some concerns about severe inflation in our economic future, but only if investors start putting their money in commodities rather than stocks or bonds and the value of the dollar declines quickly.

China is a "big question," according to Johnson.

"Will they continue to buy U.S. treasurys or will they sell them off? If they sell them it could trigger a strong round of inflation," he said.

Johnson said he believes China will continue to hold and invest in U.S. bonds because "its in their best interest to do so. Don't be afraid to buy stocks. Don't panic."

As for bringing down the budget deficit, Johnson said he believes in the "balanced approach" of mixing budget cuts with increased revenue. However, he doesn't think increased taxes will be necessary. According to Johnson, revenues could be raised by closing tax "loopholes" and limiting deductions. That would increase overall revenues, which could in turn be applied to the deficit, he said.

Albany State University's Michael Rogers said he doesn't think Standard & Poor's is particularly qualified as a rating agency.

"They (S&P) have quoted three or four reasons for the downgrade, but it depends on who's doing the talking, and the reasons conflict," Rogers said. "S&P was in cahoots with the big banks that got us in this economic mess in the first place -- giving loans to potential homeowners who didn't qualify. They made up jobs and incomes that people didn't have.

"These are called 'liars' loans. They knew they (the loans) wouldn't hold water. It's illogical that we can't pay our debts."