The bond market has reacted to the S&P downgrade of US debt with a big rally in US Treasuries. As I write, the US government can borrow money for 10 years at about 2.3% and for 2 years at under one quarter of a point. The market wants to buy, buy, buy US debt.
What the market wants to sell are stocks: ie, claims on the future earnings of private-sector companies.
In other words, the market is saying: We fear recession and deflation. The Washington consensus is that we need to fight debt and inflation. It’s utterly upside down, utterly perverse.