US Credit Rating Downgrade

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October 17, 2013:
Chinese agencies are downgrading US CreditStandard & Poor downgrades US credit from AAA to AA+, which is going to hit people in the pocketbook.

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Should You Worry?:

The average person does not understand that a downgraded credit rating for the US means that interest rates rise, and foreign investors may move toward other instruments instead of Treasury bonds. If we can't get people to borrow our money, it becomes worthless paper.

How Does the US Credit Rating Downgrade Hurt Your Pocketbook?

America's Credit Report Takes A Hit

The October 2013 Debt Ceiling and Default debate, combined with a Government Shutdown, has rattled markets and gotten foreign investors taking a second look at US bonds, which used to be considered the safest place to put your money. China, Japan, and other foreign parties have invested their money in the US, so a default would have disastrous effects on their economy, and would lead to instability worldwide. (As we all know, the world in 2013 is totally stable with no danger at all of unraveling at any minute.) In any cases, the US sells debt to other countries, who put their profits into bonds, which we squander on government programs that are bought with the borrowed dollars. At some point real money has to pay it back, or currency needs to be significantly devalued by printing trillions of dollars, which will mean that your next trip to McDonalds will cost you $500 for a happy meal, and your savings will be wiped out, but at least you can pay back your mortgage for what you make in a couple of days, until your bank closes from hyperinflation losses. Good times. It could be bad for the whole world. When Standard and Poor's Downgraded the Credit Rating of the US in April 2011, the stock market quickly took notice and lost almost 2% of its value in a day. Though the country is still AAA rated, the negative rating indicates that this status could change in the next 2 years, based on the long term debt of the country, lack of a clear fiscal policy due to political fighting, and the challenges related to the debt ceiling, which lawmakers have threatened not to raise without a deal from the White House. The decreased credit rating on long term bonds has made investors skittish, since the potential for a US government default, though remote, could plunge the globe into a worldwide depression. Many governments and private entities around the world rely on the full faith and credit of the US dollar and the bonds that back it. China, for example, has several hundred billion dollars in bonds, and a default would create extreme tensions. Even a devaluing of the bonds would create shockwaves, so lawmakers may be compelled by the S&P downgrade to work harder on reducing budgets and finding ways to lower the national debt.

Notes and Special Information

Special note: Apparently the US debt ceiling deal was not good enough for the bond market, and this may indicate that a better US financial policy could restore the AAA rating.