The big story in financial markets yesterday was the panic that ensued when S&P announced it was downgrading the outlook on Great Britain's AAA credit rating from "stable" to "negative," meaning there's a real risk Britain could lose that critical rating in the next few years thanks to the amount of debt it's run up. Still, investors weren't worried so much about Britain as what the move could mean for the United States, which, you'll recall, has also been running up some debt lately. The fear was that the U.S. might also be at risk of a downgrade. As a result, stocks, bonds, and the dollar all took a hit yesterday.

The FT surveyed some Wall Street prognosticators and turned up a lot of ominous rhetoric. To wit:

“It is highly unusual for every major market segment involving US sovereign risk to sell off sharply and simultaneously,” said Mohamed El-Erian, co-chief executive at Pimco. “It is a shot across the bow for the US.” ...

[A] leading hedge fund manager told the FT: “This may be one of those days we look back on and remember five years from now.”

I don't take as gloomy a view--it still seems to me that more people want to hold U.S. Treasury bonds when things get dicey than don't. (I'll have some more thoughts in this in a TNRtv segment I'm about to do.) But one can see how these developments wear on already-anxious minds. For what it's worth, stocks are up a bit as I write this but the dollar has continued to drop.

Update: The commenters make several great points and generally share my skepticism that the sky is falling. One thing I'd elaborate on--which I get into in the TNRtv bit I plugged earlier (which should be up some time this afternoon)--is the strong psychological hold of the dollar as a safe haven. The Journal highlighted this detail, for example:

The announcement [of the S&P outlook downgrade for Britain] quickly sent waves across the Atlantic. Investors initially dumped U.K. bonds and the pound, heading for the relative safety of U.S. Treasurys. But within hours, worries about an onslaught of new U.S. bond sales and the security of America's own triple-A rating drove down the prices of U.S. Treasurys.

I actually find this much more encouraging than discouraging. It shows that people's initial reflex is to run for Treasurys when times get tough. Yes, bond traders eventually worked themselves into a lather about U.S. solvency that caused them to dump Treasurys as fast as they'd scooped them up. But the initial impulse is pretty telling, I think.

--Noam Scheiber