Credit Rating Downgrade

The United States has had the highest and best credit rating available since countries began to be rated in 1914.

Standard and Poor's explains their reasoning for issuing credit ratings:

"A credit rating is Standard & Poor's opinion on the general creditworthiness of an obligor, or the creditworthiness of an obligor with respect to a particular debt security or other financial obligation. Over the years credit ratings have achieved wide investor acceptance as convenient tools for differentiating credit quality."
(Source: http://www.standardandpoors.com/ratings/en/us/)

So, when S&P downgrades the United States' credit rating, they're making a statement about how comfortable they are in recommending their customers invest in the debt securities that the country in question tries to sell. More simply, when any credit rating agency downgrades anything (a business, country, etc.), they are expressing their concern that any investment (plus interest and/or dividends) will be recovered, or at least that the odds have decreased for some reason.

Well, what does this move mean for the United States' ability to repay their creditors? At the very least, Standard & Poor's has called it into question... formally... publicly.

What does this mean to you as an individual? More than you may initially think.

Have a look: "One area of concern is whether a downgrade would ward off investors from buying U.S. debt and increase the country's cost to borrow money, therefore increasing consumer interest rates on everything from mortgages to car loans to student loans." -CNN.com


How do lawmakers react? Some, predictably, are trying to blow it off as absurd: "A source familiar with the discussions said that the Obama administration believes S&P's analysis contained "deep and fundamental flaws.""

Interest rates will likely rise. That's good for your 401k, savings accounts, and IRA's. But, it's not so good for folks looking to get a loan for a house, car, or an education.

Inflation is another potential issue along with unfavorable exchange rates. The dollar is already weak and vulnerable. Now, there is little question that the world's reserve currency is going to lose even more of its value. This pushes the BRIC countries (Brazil, Russia, India, China) even closer to completely dropping the U.S. dollar in favor of the Chinese yuan or possibly a completely new currency as has been reported by several outlets since at least 2009.

What will you do? What can you do? The list is too long for this post. I'll encourage you to make the list by posting your comments below.

-Matthew Nielsen
Independent Voters for Less Government (IVLG)