GUY RAZ, host: Let's turn now to Felix Salmon. He blogs about finance for Reuters.com, and he's been writing about the debt ceiling crisis. Felix, welcome to the program.
FELIX SALMON: Thank you.
RAZ: Last week when there was no deal to raise the debt ceiling, the financial markets were supposed to go haywire. That didn't happen initially, but, of course, the S&P did have a pretty rotten week this past week. Let's say Congress does reach a deal before the deadline on Tuesday night, do you think the markets are going to be forgiving?
SALMON: No. No. The damage is done at this point. Everybody knew that the debt ceiling is going to be raised eventually. There was a small chance, and there still is a small chance, that it won't get raised before August the 2nd. But managing to raise the debt ceiling is not something which anybody should be applauded for.
This is something which you automatically do, and it's a no-brainer. And the fact that we even came close is absolutely dreadful and says such bad things about the state of the U.S. political economy that the markets are going to be pretty depressed for a while, I think.
RAZ: Let's talk about the issue of a potential downgrade of the U.S.' credit rating. Is that a possibility?
SALMON: It's almost a certainty at this point. In terms of credit ratings, the agencies worry about two different things. They worry about your ability to pay, and they worry about your willingness to pay. And the United States has the ability to pay, there's no doubt about that. We can easily cover our debts. But what we've seen in Congress over the past couple of weeks is a decided lack of willingness to pay. And if you don't have that, you don't deserve a AAA credit rating.
RAZ: So what will a downgrade from AAA status to AA actually mean? Because some people say it's not going to matter a whole lot.
SALMON: Well, there's a good chance that they're right in the short-term, that, you know, bond yields won't raise a lot, that the stock market won't fall a lot. We won't have one of those big market crises like we saw in 2008 when, you know, Congress failed to pass the TARP bill and suddenly the stock market crashed.
It's not that kind of event. It's more of a long-term event that what happens is that the entire market and the economy becomes much more fragile so that the next time there is a big crisis - and there's always going to be a crisis at some point - the repercussions will be a lot worse. And people will, instead of fleeing to treasury bonds as a play for safety, they'll flee away from treasury bonds because they fear that the United States is a brittle and more fragile place than it was even in 2008.
RAZ: But where would they go? I mean, what are the alternatives?
SALMON: That's a really good question. And for the time being, they don't have a lot of choice, which is one of the reasons why there won't be a, you know, a massive market swoon when this downgrade happens. But there's always some form of cash or another, or, you know, German bonds. Or maybe they'll just decide if you're going to be taking risks, you may as well take risks and get return for it and start buying stocks instead.
RAZ: Is there a possibility that - you say this downgrade is almost a certainty. Could the U.S. reverse that? How - and how long would it take? How long would it take to go back to a AAA bond rating?
SALMON: Once you lose your AAA, it's gone. I very much doubt that we will see a downgrade reversed. The best-case scenario right here is that the fiscal straitjacket that the Senate is putting together is so compellingly certain that the rating agencies go, oh, right. So now you have your house in order. And everything is going to be fine, and we're not going to have any of this kind of debt ceiling fiasco ever again. And so we trust you to do the right thing and we'll keep you at AAA.
That's about the best we can hope for, is that we don't get the downgrade. Once we get the downgrade, it will be downgraded for the foreseeable future. I cannot remember the last time that anyone got upgraded to AAA.
RAZ: That's Reuters finance and economics blogger Felix Salmon. We reached him in London. Felix, thanks.
SALMON: Thank you. Transcript provided by NPR, Copyright NPR.