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Q&A | 5 Questions With Columbia Business School Professor on the Debt Crisis

Monday, August 08, 2011

Standard & Poor's downgraded the U.S.'s credit rating agency, and economists had mixed reactions. WNYC spoke Andrew Ang, the Ann F. Kaplan Professor of Business, Chair of the Finance and Economics Division, at the Columbia Business School.

Q. How bad is it that one of the credit rating agencies downgraded the U.S.?

A. In the overall scheme of things, it doesn't really mean very much. Everything here is a very big, short-term over reaction. There are some underlying economic problems that we have, but to have such a huge knee-jerk reaction to the opinion of one credit rating agency is going a bit overboard. So, hang in there, that would be my advice.

Q. Who or what is to blame?

A. A lot of this is overreaction. There are some problems with our economy, there is huge uncertainty, but overall this is the opinion of a single rating agency. This doesn’t change the U.S. It doesn't change that this is the best place to do business. It doesn't change that it is the only sole superpower that can project military, economic and political power anywhere in the world. And it doesn't change the fact that it's the largest, most outstanding bond market in the world.

Q. Should we expect other credit rating agencies to follow S & P and downgrade the U.S. as well?

A. Ultimately, I would hope that it actually doesn't depend on what any of the rating agencies say. In fact, a downgrade of the U.S. happened a few weeks ago from a Chinese rating agency. They were actually the first ones. The fact that these rating agencies change, isn't going to change that fact that China can't hold anything but U.S. treasuries.

Q. S&P changed its report after the administration said its math was wrong so who should we believe?

A. This is all opinion, so you can believe anyone. Their opinion is as good as mine.

Q. Will we bounce back?

A. We will. There is no alternative yet. No alternative to holding U.S. treasuries. We are witnessing — this is the time scale of 50-100 years — a transfer of power back to the East. For the past 200-300 years we've had a big transfer of power centralized to the West, that's an aberration in the long arc of history.

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