On Friday, August 5, 2011, the United States lost its triple A credit rating for the first time. This prestigious rating allowed the country to borrow money at very low interest rates. This is important to all consumers because those interest rates translate into other financial lending rates that will affect the average person and their ability to obtain credit at low rates. Many lenders turn to Moody’s Investor Service, Fitch Ratings and Standard & Poor’s when making loans and base interest rates on a country’s credit rating. The US Congress recently fought to the last minute to prevent a downgrade of the US credit rating.
Measures to raise the debt ceiling and deal with a $14 trillion debt load advanced at a snail’s pace. While there were finally some deals and a new debt ceiling, many feel that the spending cuts and revenue increases enacted by President Obama on August 2, 2011, did not bring about adequate changes in spending and debt management. .
Much of the US debt is currently held by China. China has its own state-controlled credit rating agency. He had already decided to take the first step in downgrading his US credit rating. The effects of this downgrade will mean that China could stop buying US bonds. In response to this action, investors will lose confidence in those same US Treasuries and stop buying. In a snowball effect, this will negatively affect debt stability and further tighten credit. The cost of credit on all fronts for everyone will increase. The Stock Market is also very reactive to negatives.
JP Morgan Chase & Company estimates that any downgrade of the US credit rating status will cost the US an additional $100 billion per year. Snowball effect of US credit rating tied to rates interest on Treasury bonds. Some think that raising the debt ceiling only creates false security in the minds of some people, but not for lenders. This huge debt load is passed on to future generations and can have a negative impact on their lives.
The Federal Reserve decided to keep interest rates historically low for at least the next two years. Lower home prices and low interest rates make it easier for some Americans to buy affordable housing. This is a relief to many.
According to many, the current debt ceiling plan does not go far enough to reduce overall debt. The deal Congress struck only lasts until 2013, when the haggling over spending cuts and new revenue begins again. A congressional committee will be formed to make additional recommendations before the end of 2012. Standard & Poor’s and others wanted to see a package that would bring $4 trillion in deficit reductions, rather than the projected $2.4 trillion in this package. S&P was the first agency to downgrade the US credit rating due to lack of confidence.