Last week, the stock market suf­fered its worst stretch since 2008, while Stan­dard & Poor’s down­graded the government’s credit rating for the first time in his­tory. We asked finance expert Jef­frey Born, a pro­fessor in the Col­lege of Busi­ness Admin­is­tra­tion, to weigh in on the S&P down­grade, the impact of fiscal tur­moil in Europe on the Amer­ican economy and the risk of a double-​​dip reces­sion — all fac­tors weighing down investor sen­ti­ment when it comes to the world’s major economies.

What will be the long-​​term affects of the S&P down­grade of the United States — from AAA to AA+ — on the global economy?

There are going to be some prac­tical dif­fi­cul­ties that are going to arise if more rat­ings change. If Moody’s and Fitch jump in and down­grade the U.S., then there are going to be some prob­lems because a lot of con­tracts and agree­ments are written in terms of risk-​​free rates and usu­ally we use U.S. trea­sury bond yields as proxies for that.

No one believes the U.S. is going to default; this is just a reflec­tion of where the finances of the U.S. gov­ern­ment have gotten. There have been all sorts of warn­ings about this — it didn’t just happen last week, this is some­thing that has been talked about for five or six months. We’ve seen an increase in bor­rowing levels as the U.S. tried to stim­u­late the economy. All that spending led the credit agen­cies to say that it was a bit too much, and that’s why we had the down­grade. While the U.S. economy isn’t spurred to a halt, it def­i­nitely is slowing down.

Is the Amer­ican economy about to enter a double-​​dip reces­sion? Is there any­thing that could be done to pre­vent it outright?

In normal cir­cum­stances, if mon­e­tary author­i­ties or the gov­ern­ment were con­vinced that we were about to enter a reces­sion, they could try to stim­u­late the economy before the reces­sion actu­ally took hold. The problem we face now is that we’ve kind of shot all our guns — interest rates in the United States are already incred­ibly low, and it’s hard to imagine how banks could take them any lower. There’s very little that the Fed can do and unless Wash­ington is going to imme­di­ately renege on the promises it made last week to cut spending, it looks like its hands are tied as well.

What it would take would be for con­sumers and investors to start spending and investing again, and there just hasn’t been enough good eco­nomic news to make people feel con­fi­dent about where the economy is going. If [a double-​​dip reces­sion] is coming, I don’t think there’s much that any­body can do to halt this one.

Much of the blame for last week’s steep declines on the Amer­ican stock market fell on the Euro­pean economy, not the debt-​​ceiling crisis at home. Why did the state of the Euro­pean economy have a greater impact on the Amer­ican market than the debt-​​ceiling deal?

The Euro­zone coun­tries, which share a cur­rency and a larger polit­ical struc­ture, are kind of in the same boat as we are — they have high unem­ploy­ment and other sim­ilar prob­lems — but their cen­tral bank is very con­ser­v­a­tive in terms of its will­ing­ness to print money, so there are even fewer tools avail­able to solve their problems.

Of course there are some coun­tries that are doing very well, but others — like Ire­land, Greece, Por­tugal, Spain and Italy — are in far worse posi­tions. This is leading some econ­o­mists to think there might be a push to abandon the Euro. That would create very real prob­lems and have ram­i­fi­ca­tions that would be very hard to imagine.