Legendary investor Warren Buffet raised serious doubts about Standard & Poor’s’ move to cut the credit rating of the US and expressed confidence that the country will avoid a double-dip recession. In an interview with Bloomberg, the 80 year old investor said the US deserved a quadruple A, an observation that is expected to allay fears after the week saw the biggest sell-offs in US stocks since November last.
“Financial markets create their own dynamics, but I don’t think we’re facing a double dip recession. Clearly what stock markets do have is an effect on confidence, and this selloff can create a lack of confidence,” said Mr. Buffett.
The S&P move has already been strongly contested by the US treasury, which termed the credit ratings agency’s calculations flawed. Moody’s Investor Service and Fitch still maintain top ratings for the US economy. Euro region central bank governors will be holding emergency meetings aimed at limiting damages after the first US downgrade in history.
“It will fuel uncertainties about the functioning over time of the world economy as there are no other pure AAA’s able and willing to materially complement or replace the role of the U.S. at the core of the global financial system” said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., adding AAA ratings of other world economies such as the UK and Germany will now be questioned.
S&P had cut the US credit rating yesterday citing “greater policymaking uncertainty” and rising public debt, blaming the bitter and protracted political battle over spending cuts and raising taxes that delayed the decision of raising borrowing limits pushing the country on the verge of default.