06 August 2011

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Impact - Reasons why S&P reduced American Credit Rating from AAA to AA first time in history

Impact - Reasons why S&P reduced American Credit Rating
from AAA to AA first time in history

On April 18, 2011 S&P put the U.S. government on notice that USA risked losing the AAA rating it had since 1941 unless lawmakers agreed on a plan by 2013 to reduce budget deficits and the national debt. It indicated last month that anything less than $4 trillion in cuts would jeopardize the rating.

New Zealand is the only country other than the U.S. that has a AA+ rating from S&P and an AAA grade from Moody’s.
Belgium has an equivalent AA+ grade from S&P, Moody’s and Fitch.

Since 1917 USA enjoyed the AAA credit Rating this is the first time that the credit rating of USA fallen below AAA credit rating from S&P that is Standard & Poor's, the credit rating agency

The credit rating agency said that it is cutting the country's top AAA rating by one notch to AA-plus.
S&P credit rating agency said that We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.

The rating may be cut to AA within two years if spending reductions are lower than agreed to.

We have also removed both the short- and long-term ratings from Credit Watch negative.

On August 2 American congress , politicians agreed to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred.

S&P said in a statement that “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,”
S&P said the U.S.’s debt may rise to 74 percent of gross domestic product by year-end, to 79 percent in 2015 and 85 percent by 2021.

Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings on August 2, 2011.

JPMorgan Chase & Co. estimated that a downgrade would raise the nation’s borrowing costs by $100 billion a year.

In 1998, S&P lowered ratings for Belgium, Italy and Spain. A week later, their 10-year rates had barely moved.

What will be the impact or effect on USA after the downgrade by S&P

1. The interest rates the USA government pays to finance the growing national debt will rise

2. The interest rates will go up on Basic credit facilities -- like mortgages, student loans and credit cards

3. Rise in consumer interest

4. Will become more difficult to get the loans

5. Job loss – as companies will try to save money

6. gold prices will go up

7. Silver prices will go up

8. Less profits from stock market

What will happen now as American lost AAA credit rating?

There is no option nothing is going to change as World has no option but to continue and treat America as the Leader and No.1 but in next 25 Years china will become No.1 if same policies are followed by American politicians, the policies which damage American Economy.
China has accumulated more than $1.16 trillion in the securities

Currently dollar is enjoying the status of world currency but now dollar is losing that status very slowly.

Now this will give rise to gold and silver prices as rich countries and rich people will start to invest in gold and silver.

The U.S. currency’s portion of global currency reserves dropped to 60.7 percent in the period ended March 31, from a peak of 72.7 percent in 2001, data from the International Monetary Fund

Reality views by sm –
Saturday, August 06, 2011

Tags – S&P USA Credit Rating AAA AA+ Reduced Impact Reasons


Nava K August 06, 2011  

Yet to be seen how far China can go because their bubble keep bursting too.

Destination Infinity August 06, 2011  

Looks like every country has its own problems. It should take just some more time before the US bubble completely bursts (In the minds of Indian people's phoren dreams).

Destination Infinity

sm,  August 07, 2011  

Destination Infinity,thanks.

Aiman August 07, 2011  

US is wrapping the strings around his own neck.

Kirtivasan Ganesan August 08, 2011  

It started with multiple loans against a single asset. Then moved on to loans against improper documents and then the capitalist America fell down. That happened earlier with Goldman-Sachs.
The federal bank tried to revive the economy with monetary support. Seemed an Indian move in capitalist America.
The S&P did not seem to like it and eventually downgraded America to AA+ from AAA.

Lipin Vayalombran August 08, 2011  

US is losing status of No.1 because of inefficiency of the government and politicians