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Warren Buffett Says S&P Downgrade "Doesn't Make Sense," T-Bill Buyers Agree

The world's most successful investor, billionaire Warren Buffett, thinks Standard and Poor's downgrade of the United States' triple-A credit rating "doesn't make sense." The Chairman...
August 9, 2011

The world's most successful investor, billionaire Warren Buffett, thinks Standard and Poor's downgrade of the United States' triple-A credit rating "doesn't make sense." The Chairman & CEO of Berkshire Hathaway told Fox Business News that S&P erred when it issued the downgrade and reiterated his view that the economy will avoid its second recession in three years. The U.S. has the top credit rating at both Moody's Investors Service and Fitch Ratings.

"I don't get it," said Buffett. In fact, Buffett reaffirmed his belief in the quality of the United States' credit. "In Omaha, the U.S. is still triple A. In fact, if there were a quadruple-A rating, I'd give the U.S. that."

Many observers have questioned the decision by S&P to downgrade U.S. debt and some have questioned the credibility of S&P itself. Treasury Secretary Timothy Geithner noted that an early draft of Friday's S&P press release announcing the downgrade misstated U.S. debt, saying it was $2 trillion higher than it is. S&P corrected the error, but did not retract its downgrade decision. Other observers note the role played by S&P prior to the 2008 financial collapse in certifying as AAA investments mortgage-backed securities that turned out to be toxic.

While the stock markets seem to be reacting to the S&P downgrade of U.S. debt with increased volatility, major uncertainty is also being fueled by debt concerns in Europe, particularly Italy and Spain. Amid all of this, bond investors are giving the United States a major vote of confidence.

Treasury bonds proved again Monday that they are still a haven for global investors despite the first credit-rating downgrade on the U.S. in modern history from one of the big three firms. Bond prices rallied broadly as investors fled risky assets including U.S. stocks, with the benchmark 10-year note's yield falling toward the lowest level since October.

Read moreon Buffet's S&P Comments: Buffett: S&P Downgrade "Doesn't Make Sense" (Fox Business News 8/5/11)
Read more on the U.S. debt crisis: Treasuries Rally As U.S. Debt Remains Go-To Heaven (Wall Street Journal 8/8/11)