On August 5, 2011 the unthinkable happened. The U.S. lost its triple A credit rating. This had never occurred before. We had enjoyed the world’s top credit rating for 70 years, never experiencing a downgrade until Standard & Poor’s decided that the deficit reduction plan developed by the Administration and Congress and signed by the President, was insufficient to allay credit concerns. And besides that the resolution process was too messy, adversarial and slow.
The downgrade means the country will have to pay higher interest rates to borrow money. Just like a consumer with a low FICO score has to pay more for their mortgage and credit card interest the government will pay more than more credit-worthy countries like England, France and Germany. The ripple effect is also happening with further slides in the stock markets and downgrades for governmental mortgage lenders/underwriters – Fannie Mae and Freddie Mac. States and local governments will probably be next in line.
YES, YOU WILL!
There will undoubtedly be fallout and we will end up paying the bill. Not only will we have to make up the difference on the government’s debt repayments, but the likelihood is that we’ll see Credit Cards, Bank Loans, Student Loans, Mortgages, etc. all have rate increases. Plus investment losses will adversely impact pension plans, 401k’s, etc.
The drag on the already struggling economy will be substantial. More money will be leaving the country to repay our foreign creditors, and more dollars will be leaving the pockets of wage-earners. If you need more incentive to reduce debt – here it is!
