U.S. Credit Rating Downgrade – What it means to you

Standard and Poors Downgrades US Credit Rating

Standard and Poors Credit Rating Agency recently downgraded the US credit rating from AAA to AA+.  In doing so Standard and Poor's stated that it is pessimistic about the ability of Congress and the administration to stabilize the U.S. debt and said the recent political brinksmanship over the debt shows America's policy-making to be less stable and predictable than thought.  Moody's and Fitch Credit Rating Agencies reaffirmed a rating of AAA so there is some controversy over what the downgrade from S & P will ultimately mean.

 What does Credit Rating Downgrade Mean to U.S. Consumers?

Interest rates are likely to rise.  As a consumer the interest rate you pay on your credit card and other debt is tied to your credit score and this is also true for the U.S. Government. Higher interest rates will mean larger interest payments, some estimates put the cost at up to $100 Billion per year.  A lower rating on U.S. debt will also make investment in the U.S. less attractive compared to other countries and this also could put pressure on the U.S. government's ability to manage it's finances.

 U.S Credit Rating May Put Pressure on U.S Stock Market

Businesses may also have to pay more on debt interest and would have less money to make investments and to hire new employees. Many U.S. pension funds hold large portfolios of U.S. Securities and have mandates to hold AAA rated debt.  If Pension Funds are forced to sell these securities prices would fall and yields would rise. Both of these factors would put further downward pressure on stock prices.

The bottom line is everything just got more expensive.  The long-term outlook is uncertain at this point but the credit rating downgrade has highlighted the inability of politicians in Washington to get it's fiscal matter's in order.

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