Our AAA rating is Retained
By: Rebecca Figone
Our debt ceiling debacle produced much uncertainty, and even though the President has upped the debt ceiling by signing into law this new legislation, our AAA rating with Moody’s is still in no longer in jeopardy. Yet there is still a negative as this current debt ceiling bill does little to address the real problem.
This just in from Bloomberg:
“Moody’s Investors Service said the U.S. credit rating may be downgraded for the first time on concern that fiscal discipline may ease, further debt reduction measures won’t be adopted and the economy may weaken.
The U.S., rated Aaa since 1917, was placed on negative outlook, New York-based Moody’s said in a statement today as it confirmed the rating. Moody’s warned on July 29 a negative outlook was “more likely” as lawmakers reduced the size of spending cuts being negotiated to win approval on a plan to lift the nation’s borrowing limit.
A ratings cut would raise the specter that the wrangling between President Barack Obama and Republican lawmakers over spending cuts and taxes will harm American prestige and the global financial system. JPMorgan Chase & Co. estimated that a downgrade would raise the nation’s borrowing costs by $100 billion a year. It could also hurt the rest of the U.S. economy by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on Treasuries.
“A downgrade is a sign that Congress is failing to address a real fiscal issue,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in an interview before the announcement.” (to continue reading this piece, please see this link)
So, what does this all mean for the people, for government, and for our economic situation? If Moody’s downgrades our AAA rating, it will then cost more (in interest rates) to borrow. This will make a situation worse, as it will in turn cost more to live. Those in business will be forced to pass these new interest rates along to the consumer. If we had passed Cut, Cap and Balance, this all could have been avoided, from my own understanding, but this new legislation does not produce the confidence for Moody’s to keep our AAA rating the same.
UPDATE: The US will keep its credit rating, but we are currently rated negative. Time will tell as to how long we maintain it, considering our situation has not been improved with this new legislation. This post will be further updated, when more information is available.