Crashing Markets, Credit Downgrades- What Comes Next?

Tragic news about the United States economic atmosphere has been inescapable throughout the country and world for quite some time now. With constant debate over raising the debt ceiling, shocking losses in the stock market, devastating unemployment rates, and a downgraded national credit rating, it’s no wonder the country’s economic health has been in question. After a series of blows to the U.S.’s economic wellbeing, things don’t seem to be getting much better. The country’s credit rate fall has been of great discussion ever since Standard and Poor’s downgraded it by a full point on Monday, August 8th 2011. To add to the blow, the U.S. stock exchange ended the day that Monday down more than 600 points.

Standard and Poor’s downgraded the United States’ national credit rating from AAA to AA+ (a full point down) in light of the recent Budget Control Act of 2011. This act, passed by congress on August 2nd, responds to the recent drama over raising the national debt ceiling. The act raises the debt limit initially by $400 billion and makes several other increase provisions for the future. However, Standard and Poor’s downgraded the U.S. because they say the deficit reduction plan passed by Congress does not go far enough. With a score of AA+, the U.S.’s investment grade is described as high quality, with very low credit risk, but more susceptible to long-term risks. Specialists worry that the downgrade could negatively impact investors’ confidence in the world’s largest economy (as it should).

The question now is what will the Standard and Poor’s downgrade mean for the United States economy? Standard and Poor’s is a financial services company operating in the United States with well known stock market indices in the U.S., Australia, Canada, Italy, and India. Importantly, Standard and Poor’s is one of the three major credit-rating agencies in the United States alongside Moody’s Investor Service and Fitch Ratings. These credit-rating agencies issue credit ratings for the debt of both public and private corporations. Standard and Poor’s, alongside the two others, have been designated by the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization. Standard and Poor’s gives long-term credit ratings on a scale from AAA (as the highest rating) to D (as the lowest rating). These credit ratings are used to inform lenders about how reliable and stable those particular borrowers may be.

So, what comes next? Reports state that the other two major credit-rating agencies, Moody’s and Fitch, have no plans to follow Standard and Poor’s example. While losing its triple A rating for the first time in history is a significant blow to President Obama and the United States government, it should not necessarily have come as a huge surprise. The country’s economy has been sloping downward for some time now. With unemployment at over 9%, significant debt, feuding governmental parties, and the threat of a double dip recession, the United States may need to shake off the shell shock of losing their top credit status and work harder to fix it for the future.

Author Bio:

Stella Walker is a freelance writer of credit score where she writes about topics including credit, debt, investment, bankruptcy.

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