Absent Norcini's excellent and insightful piece is a critical impact assessment on how this downgrade will impact the change in holdings of US Treasuries by Mutual Funds, Pension Funds and other large investors. Many of these institutions have an overiding philosophy and mandate that drives the decision making process on which investment vehicles are to be held. And that key metric says they will only invest in anything rated triple AAA. This suggests that a large number of these investment firms will be forced to divest their Portfolios of any US treasuries in face of this historical downgrade. Kudos to Bill Gross who saw this coming well ahead of the crowd, even the smart investment types.

On the flipside I think we'll see an exodus of the proceeds of these dispositions flow into quality corporate bonds, making this an excellent investment opportunity besides the obvious - the ultimate welath reserve of Gold & Silver. This in turn will impact contractual obligations of interest rate sensitive derivatives (eg SWAPS) triggering a wave of impacts into the balance sheets of holders of these weapons of mass financial destruction. The key question as we plunge into this quagmire is the ability and willingness of Soveriegn entities to absorb these Tresury outflows. This is my greatest concern about the impact of the downgrade.