Consequences of a U.S. Credit Downgrade
Aug 03, 2011 |
Although the debt crisis has passed with an agreement to raise the ceiling in exchange for more than $2 trillion in spending cuts, the U.S. is not out of danger yet. The country’s credit rating is still on the edge of being downgraded. Fitch Ratings and Moody’s Investor Service both affirmed their AAA ratings for the U.S., but the markets are waiting on baited breath for Standard & Poor’s judgment.
And both Moody’s and Fitch have assigned a negative outlook to their affirmations — a warning that a downgrade is still possible in the next 12 to 18 months if the economy weakens and debt reduction measures aren’t enacted.
The country’s current AAA rating is the highest rating from an agency and a downgrade would be catastrophic. It would mean that the credit rating agencies don’t have faith that investors will receive interest payments and the capital they are due. The downgrade would also increase borrowing costs for the U.S. government and businesses.
Zillow listed some of the other consequences that could arise from a credit downgrade, including a spike in credit card rates. Read more here.