US Credit Rating

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October 17, 2013:
China Downgrades US After Debt Ceiling Deal. Watch your credit card rates!

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2013 Debt Ceiling Debates:

The government shutdown threat and debt ceiling debates have led to questions about the rating again. The credit rating of the United States of America had been the same for decades, until 2011 when it was downgraded. Whether the President or Congress (or both) gets the blame is immaterial if there is a sudden economic crisis, or the US defaults on bonds and the world economy collapses. If so, you'd better learn how to grow your own food, or burn hyperinflated money for warmth, because even if you buy gold, you can't eat it!

US Credit Rating - Like Your Personal Credit Report

The Free Credit Report For The US Hurts The Stock Market When It Goes Down

US Credit RatingAs of October 17, 2013, a debt ceiling deal is in place, but this doesn't mean that the US credit rating has gotten away unscathed. The old arguments about "kicking the can down the road" still apply and January 2014 may be the date of the next shutdown, default scare, or other paralysis. Investors in US Treasuries and other bond instruments may find themselves worrying that an overleveraged America might falter in another economic crisis. The one advantage the US had in the 2008 meltdown is that the deficit and debt were not as large, and there was room for stimulus spending and pork barrel shenanigans for all. Today, there is a great reluctance to max out the American Credit Card, and foreign investors might not be buying all the government paper if it gets issued, so at some point people will have to either pay back the money borrowed or watch the currency get devalued, driving up inflation and souring our borrowers. Egan Jones downgraded US soverign debt on September 14, 2012 to AA- on concerns about the third round of quantitative easing. While the agency does not have the same clout as Moody's, there is still real concern about interest rates and debt, especially since changed credit ratings mean that bonds may be less attractive to investors who are looking for long term security. While nobody expects the US to become an economic basket case like Greece, a downgrade is still a black eye for the President and Congress, who can't agree on a debt and deficit solution that is palatable to banks and voters. Rating agencies look to clues like the debt to GDP ratio, and the US ratio has gone up from 66% in 2006 to 104% today. In comparison, countries like Spain have a ratio of 69%, and people are already making a run on banks. The US Credit Rating suffered a shock on April 18, 2011 when Standard and Poor threatened to downgrade America's credit rating to below AAA within the next 2 years. Now, the threat to downgrade US credit has come to pass, as of August 6, 2011.  Much like an individual credit rating as seen on a FICO score, national credit ratings are based on the chances a country will pay back its debts. In the same way that a person with bad credit ends up paying higher interest rates with more borrowing restrictions, a country with bad credit (like Greece) also would experience higher interest rates that it has to pay back on bonds which are sold to finance debt. Continuing the comparison, the way a personal credit report might limit a person's chances of buying a home, paying for a car, or even getting a credit card, the credit ratings for countries can be lowered to "junk" status, which means that investors who risk their money on such countries, as in individuals, are in danger of big losses . The stock market and world financial markets can react quickly to even a hint of default, since very rich investors, banks, and other governments may sell off bonds and dollar-based assets in order to hedge their bets against such a catastrophe..

Notes and Special Information

Special note: If the US gets downgraded to junk status, the interest payment on the debt could cost more than social programs, defense, or anything else.