Welcome to the University of Miami School of Business

Accessibility Navigation:

Finance Expert Says S&P Downgrade Unwarranted, Offers Solutions for Fixing Nation’s Financial Woes – WATCH VIDEOS

August 11, 2011
Bookmark and Share

Downgrade “Makes No Sense”

The Standard & Poor's downgrade of the AAA credit rating of the United States does not make any sense according to Sandro Andrade, an assistant professor of finance at the School of Business.

Andrade says there is no chance the U.S. will not pay back its debt, because the government can print more money, the Constitutional mandate requiring the president to honor government debt could be invoked, the government could print large denomination platinum coins, or the Treasury could sell to the Fed precious metals or option contracts. Andrade also questions the credibility of S&P.


Markets Don’t Share S&P’s Default Concern

Andrade says the markets reacted opposite to what they would if there was real concern about the U.S. not paying its debts with the 10-year yield declining following the downgrade, raising the value of U.S. bonds. Andrade also points out that the 10-year yield has been declining since March as the chance of a double dip recession appears to increase.

The decline in the stock market, he says, is not related to concern about default, rather concern the influential actors are ignoring the nature of the crisis the nation is facing.


Large Dose of Federal Stimulus Needed to Jump Start Economy

Andrade says in the short-term, the U.S. needs a large dose of fiscal stimulus to get us out of the crisis.

The economy is halting, he says, because households are not spending due to their debt burden. Resources are being wasted as unemployment remains high and industry capacity utilization remains low.

If the U.S. fails to produce a significant stimulus package, Andrade warns, the nation could be looking at another “lost decade,” as Japan endured in the 1990s.

Bookmark and Share
    School of Business Administration
    P.O. Box 248027, Coral Gables, Florida 33124-6520
TEL: 305-284-4643
FAX: 305-284-6526
GRADUATE: 305-284-2510
UNDERGRADUATE: 305-284-4641