2011 US credit downgrade and record gold

Three years after Lehman, 2011 brought an earthquake in Japan, a debt crisis in Europe and the first-ever downgrade of US government debt. Stocks fell and gold hit a record.

Japan's earthquake and the euro crisis

On March 11 the Great East Japan Earthquake and the Fukushima nuclear disaster crashed Tokyo stocks and cut global supply chains. When parts from Japan stopped arriving, factories abroad stopped too. In summer the European debt crisis spread from Greece to Italy and Spain, and markets openly questioned whether the euro would hold together.

August 5: the US loses its AAA rating

Korean stocks had a strong first half, led by the "cars, chemicals and refiners" trade, and the KOSPI broke 2,200 for the first time at the end of April. On August 5 the rating agency S&P cut US government debt below AAA for the first time ever. Treasuries are the "risk-free" benchmark used to price every other asset, and now they carried a downgrade. Stocks fell worldwide. The KOSPI, above 2,200 in May, dropped to around 1,700 within August and to 1,650 by the end of September, a quarter below its peak.

Record gold and the central bank response

The money went to gold. With both the dollar and US government bonds in doubt, gold hit a record near $1,900 an ounce in late summer. In September the Fed launched "Operation Twist", selling short-term Treasuries and buying long-term ones to push long rates down. The next summer ECB President Draghi pledged to do "whatever it takes" to save the euro, and the crisis eased. As in 2008, the answer was more liquidity.