AAA to AA Plus, What Does It Mean?

Posted on August 8, 2011. Filed under: Uncategorized | Tags: , , , , |

By Carl Chancellor

For the first time in history America’s top-tier triple-A credit rating has been downgraded, which could potentially impact mortgage and credit card interests and jobs.

Standard & Poors, which had been warning of a possible downgrade in the nation’s credit rating if a debt ceiling deal were not reached, nonetheless pulled the trigger Friday despite a debt limit agreement having been brokered days earlier.

“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,” said S&P in a statement explaining the reasons for downgrading the U.S to a AA+ rating.

Refusing to follow suit the other two major rating agencies, Moody’s Investor Service and Fitch Ratings, maintained the country’s AAA rating.

As expected the Democrats blamed the Republicans who in turn blamed the Democrats for the downgrade maintaining the level of partisan acrimony that characterized the weeks-long debt limit battle. Ironically, S&P specifically cited political gridlock and disharmony on the Hill as one of the reasons for lowering the nation’s credit rating.

Since we are entering uncharted waters with a rating downgrade for the U.S. it is difficult to accurately predict the precise fallout, but here are some likely scenarios:

• Interest rates on American debt could increase up to 0.5 percentage points resulting in higher borrowing costs for everyone
• Interest rates to increase on most consumer and business credit lines—mortgages, student loans, credit cards
• Downgrade could slow the economy—people spend less when they have to pay more—some experts predict GDP, key indicator of a country’s economic health, could drop 1 percentage point.
• Less economic activity means less demand for workers, which could increase unemployment

On the bright side, other nations have had their credit ratings downgraded with few lasting negative consequences. Japan, Canada and Australia have all been downgraded in the past with no detrimental impacts on their economies.

Turner GPA is one of the premier, highly respected government and public affairs firms in the nation. Turner’s state-of-the-art advocacy has earned them respect and acclaim from the media, clients, policymakers and even their competitors! Turner advocates on behalf of cutting edge businesses, municipalities, and non-profits that wish to ensure their perspectives and needs are taken into account in Washington, in state capitols and in City Hall, as well as in the media. The firm creates and implements intensely focused and targeted advocacy campaigns designed to meet and exceed its client’s expectations and goals. For more information on Turner GPA, visit www.turnergpa.com or call 202-466-2511.

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One Response to “AAA to AA Plus, What Does It Mean?”

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To a certain extend the today scenario is comparable to the 1929-1933 double dip scenario, with the first dip due to the financial arena mismanagment, and the second to the political parties mismanagment, both boosting national protectionisms & aggressive political “solutions”.

No US specific, but the US being the largest economy in the world, the partisan fights between the House and Capitol Hill cause world uncertainities, hence the downgrade to AA+.

Easy solution for US and Europe is to go for a quantitative Easing 3, so both can avoid recession, but in the EA3 scenario, inflation risk need to be reasonably managed.

EA3 will not heal the fundamentals, but help economies, and more important, help political parties concentrate on solutions rather than on fratricidal wars (remember WW II scenario).


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