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Showing posts from August 6, 2011

America downgraded to AA+ for the first time in history. What happens next?

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Americans are waking up to some unpleasant news this Saturday morning, we have been downgraded.  Indeed, for the first time since 1917 Standard & Poor's has lowered our credit rating from AAA to AA+ ( full text ).  Their outlook is negative, meaning that we could be lowered to AA if our situation worsens. The reaction on the Internet seems to be one of shock and fear, but neither reactions are appropriate.  Lets first examine some of the key points of the text to find out what S&P lists as their primary reason for this particular action. The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics. ...and... We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate