Unless you specifically follow financial news, you probably missed a blockbuster announcement recently: a ratings agency has downgraded US credit! What does this mean, and how does it impact you? Does it even matter?
Here are Five Fast Facts on the US credit downgrade:
- 🤔 Who And What - Fitch Ratings just dropped the credit rating on US debt from AAA (the highest level) to AA+. The reasons? Massive debt, lousy governance, sharp political standoffs, and because they also expect a recession within a year. In other words, they don't trust the US government to properly manage the nation's economy or work together to pay down its debt quite as much now. #noway
- ✔️ The Ratings - There are three main ratings agencies: S&P Global Ratings, Moody's, and Fitch Ratings. They all use "AAA" as their top level, indicating the lowest possible risk for financial default.
- 2️⃣ History - It's only the second time we've been downgraded like this. The first time was by S&P in 2011, and it caused a major drop in the markets that took 6 months to recover. But, since it's happened before without huge long-term effects, it's possible it won't be super painful now. Possible...
- 😮💨 Remain Calm - The talking heads and fancy suits are saying that the main vehicle of US debt, US Treasury Bonds, is still the vehicle of choice for the country borrowing money, and that there's no real risk of default. That's probably true. But wouldn't it be better if no alarm had been sounded at all?
- 😨 Big Picture - This isn't a one-stop shop for disaster, but it is a major step in the wrong direction. The likely result is that investors will require higher interest for US debt, which will eventually get passed along to regular Paychecks, like ours, in the form of everything getting even more expensive. This could include credit cards, mortgages, and cars. It's a long term thing, but one that we need like a brick to the face.
🔥Bottom line: We'll see how the markets react to this news in the coming days, and we'll see if the government can get itself together to address these concerns. For everyone's sake, let's hope they can!
What do you think about this downgrade of US credit?
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