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What the US credit downgrade means to you

Look for higher interest rates on mortgages, just for starters. Rates for other consumer loans, including credit cards, also could be affected.

By Karen Datko Aug 5, 2011 9:45PM

Now that Standard & Poor's sparkling, perfect triple-A rating of U.S. Treasury securities has dropped to AA-plus, what does this mean for you and me? It's like our collective 850 credit score has been downgraded below 720 -- from beyond excellent to good but not spectacular.


A downgrade is uncharted territory for the U.S., but one outcome seems likely: Americans could face higher interest rates on mortgages, car loans, credit cards and other consumer loans. Business probably will also have to pay more to borrow money, which isn't helpful to the economy. Post continues after video.

"If there's a downgrade, and it looks likely, it's quite easy to say that interest rates will go up," Chris Christopher Jr., a senior principal economist at IHS Global Insight, said in a article several days ago. "And in the end there will be a lower demand for loans, so short-term funding costs will go up for banks."


But remember, this has never happened before. The Hill's On the Money blog said earlier today: "A downgrade would deliver a psychological blow, as the nation would lose its top rating for the first time in its history, but it is unclear what the financial fallout might be."


Here are some possibilities:


Higher taxes. The interest on Treasurys will go up to reflect their higher risk, which means the cost of the nation's debt will increase accordingly. And the U.S. can't continue to maintain this course of no tax hikes indefinitely. The resistance to higher taxes by some politicians in the debt ceiling deal suggests the country isn't serious about paying its bills and is considered one of the reasons for the lower rating.


Stephen Gandel wrote at Time:

Not all of the country's debt will have to be refinanced, but if it did a 1.15% higher interest rate would cost the country roughly $170 billion more a year in borrowing costs. The cost to the average American household, if it were passed along in higher taxes, would be about $1,550 a year.

Higher homebuying costs. Interest rates on mortgages track Treasury yields. "A 1.15% higher rate on a $200,000 loan would raise your interest payments by $36,573 over the course of the mortgage," Gandel said.

Guy Cecala, the publisher of trade magazine Inside Mortgage Finance, told Bankrate that homebuyers could face higher fees as Fannie Mae, Freddie Mac, the Federal Housing Administration and the Department of Veterans Affairs absorbed higher borrowing costs.


Higher inflation. If that's a result, you'll need to stash away even more money for retirement. (Are you saving enough for retirement now? Try MSN Money's calculator.)


The lower rating is no surprise. CNBC said, "On July 14, S&P put the government on a credit watch with negative implications, meaning there was at least a one in two chance the U.S.'s long-term debt would be downgraded within 90 days."



The other two rating services, Fitch and Moody's, left their triple-A rating for U.S. debt unchanged earlier this week but with the prospect that they'd reconsider at a later date.


Rejoining the small group of nations with the top rating -- 15 now that the U.S. has dropped out -- normally takes at least 10 years, Felix Salmon wrote at Reuters.

Australia, for instance, was downgraded in 1986, and only got back into the club in 2003. The record from downgrade to reinstatement is held by Canada, which was downgraded in October 1992, and got its triple-A back 9 years and 9 months later in July 2002.

Losing membership in such an exclusive club has got to hurt, at least a bit.


USA Today wrote:  

The real hit could be to business and consumer confidence, already fragile in a weak economy. A downgrade "would be a real shock to the American psychology," says (Howard) Simons (a strategist at Bianco Research).

Eric Dash at The New York Times added:

For most Americans, the prospect that the government could lose its vaunted AAA credit rating is almost unthinkable -- a blow to national pride and consumer confidence that could turn out to be more damaging than any increase in borrowing costs.

More on MSN Money:

Aug 6, 2011 12:37AM

Apparently our representatives thought nothing about our nation losing its credit rating which was built over the course of a couple of centuries.  I don't care what  -expeletive- political denomination each of those -expeletive again- representatives fall under, all of them have made our nation a great dis-service. A simple governmental paper procedure, footed by all of us, was blotched to the underworld by a bunch of realityshow-wannabees thinking that they don't want to be the ones looking the most lamest by approving whatever idea is shinning on the table. 


The results of that easy exercise on economic policy reflects the sad shape our elected officials and their multi-partisan --since now they are three-- efforts are in. A total disgrace.


I understand one side not wanting to lose the tax-credits entitled to them during previous administrations, and another side not wanting their constituents to lose benefits given to them on the basis of their precarious existence, and yet another fighting for not having any more taxes legislated on us all... but I don't either see hoe we are going to get out of the bottomless ditch we are in if we only want our uncle to pay for the whole thing?


A few years ago we had it in our hand to continue to be up on top, to make everything new, to reconstruct our nation...creating thousands of jobs to rebuild  to renovate  to embellish  to recreate  to regain our American pride by investing TRILLIONS in our people and our infrastructure...but our --double-expeletive-- representatives did not have the guts to go against the king's wishes; and neither did we, which was the saddest part. So, we ****** it up really bad.


Still time,  but it will take much more effort than just letting a bunch of "politicians" do our job.



Aug 6, 2011 11:12AM
Stop senseless spending.
Stop aide to foreign countries.
Stop outsourcing our jobs to India, China and others.
Get out of the middle East.

Aug 6, 2011 1:00AM

We need to vote the globalist flim-flam, con-artist polititions that are stealing our money and bankrupting our grandchildren's future out of public office.

Starting with Obama of course, but there are a lot of Republicans that need to run off as well.

If our leaders are not representing the people that live, work and pay their salaries through taxes, then they  should NOT be holding a political office.

Aug 6, 2011 10:28AM
I am FURIOUS!!!  We should all be seeing RED right now. HOW DARE "WALL STREET" THE "INVESTORS" and MEDIA SHILLS CHASTISE THE UNITED STATES OF AMERICA FOR AA+ RATING!! The UNITED STATES is a SOVEREIGN CONSTITUTIONAL REPUBLIC  why does it and must it BORROW (read incur DEBT) to function and exist? Who does it owe debt to and why? Let's stop the deception and follow the money trail. 
Didn't these very same investors go bankrupt,  destroy the economy, wipe out the retirement for millions of retired americans, kill the real estate market then come stomping, kicking, screaming to the government (american tax payer) to bail them out FOR FREE! and then give themselves bonuses and vacations. These "achievers" need to be dealt with just like any other thug; expediently! 
Aug 6, 2011 11:21AM

I just have to put this out there after not hearing anyone say it after all this time. The whole debt crisis back a couple of years ago was unfortunate. However, many Americans do not understand free markets because it is something that is learned like math and physics. It is not inherited. It's a learned skill. When those "too big to fail" companies went belly up, we should have let them. That's how free markets work. Now the rich have a really bad name. Those workers would have been without jobs for some time, yes. But many visionaries and entrepreneurs would have had them back to work in no time with new innovative ideas and new car manufacturers. That is what free markets do. Free markets enable people with visions. The problem with modern America is that it can't stand to be wrong or accountable for bad decisions. We need to realize that enabling companies and government to make bad decisions means we all end up paying for other's mistakes and that, simply, is not justice.... it's communism. This is why some people really believe smaller government is the answer. They do not want people to possess the power to enable and REWARD bad behavior. I want to close with this. It's the old pioneer's creed: "Build it up, wear it out, make with due, or do without."

Aug 6, 2011 10:40AM
if we would stop sending billions of dollars to other countries and KEEP IT HERE IN THE US,we probably wouldnt have to borrow money and be in the situation that we are today!
Aug 6, 2011 10:41AM
stop for foreign funding to other countries keep that money here to help our own citizens

I love the line "the white house is calling this amateur hour at S&P"!

Are we to believe that this white house knows what they are doing? They have never had a real job, owned a business, paid a payroll ect.


Get businessmen back in the white house. lower taxes build American products, make America, a super power again!

Aug 6, 2011 10:23AM

The dreaded DOWNGRADE has happened. The President (Obama) will be the one to blame. But, it is not all his fault. He was the catalyst that brought about the CHANGE. So all those that wanted a change, here it is. So we must ask ourselves, what is next, or more importantly, what are we the registered voting Americans going to do about those that work in DC?


PS. It was not the Tea Party that set us up for this downfall. It was the republicans and the democrats. Let us not forget the Lobbyists which control our government.

Aug 6, 2011 10:51AM
We are going to pay for our corruption, greed,stupidity and over consumption.
Aug 6, 2011 11:51AM
This is simply a reflection of short term focus rather than long term fiscal responsibility. It is also a result of continually investing in destroying value (such as spending money on war), rather than investing in the well being of humanity. Look around and find the countries who are fiscally responsible. They are not at war. This Country has a political system that is not operating in the interest of its people.
Aug 6, 2011 11:38AM
I really hate to say this especially since I am a veteran, I am almost embarrassed to say I am a American. I really am empathetic for my children, and eventually for my grand children. The government really needs to take a step back and look at what they have done. May God be with us at  our time of need.
Aug 6, 2011 11:33AM
All I read is the blame game antics from the Left pointing fingers at the Tea Party or GOP but not  Democrats themselves had anything to do with it. S&P AND MOODY's stated that CUT,CAP,& BALANCE and the Ryan plan would of helped this situation but the LEFT refused and this is the result of it.  Obama and the Left had every chance to taking care of this when they controlled both the house and senate. Instead they cared more about Obamacare first which is choking businesses along with Obama's out of control regulations. Obama has never created job or run a business but he sure knows how to kill jobs. Obama is incompetent.
Aug 6, 2011 11:54AM
I believe this downturn if it becomes a 2nd recession will spell the downfall of the Obama administration  can't reach back& blame  George Bush on this mess.  time to cut back on our wars & giving money to Pakistan etc. also where are the wealthy Muslim nations when it comes to aide for Somalia ? & Africa ? cant they assist their  brothers ? & control the criminal pirates on the high seas, its always Uncle Sam $$$$$$ & our militaries blood,  then, FU  USA...  I for one am sick of the US helping out & being spat on...time to take care of our own & let the others figure it out with out our money & our blood...Then if they attack us deliver a devastating blow  like my fathers (WW2) generation  would have. America was a mighty nation when I was a boy & we need to rebuild at home.  
Aug 6, 2011 11:11AM

The shine on the American apple began to dull & fade when "the suits and CEOs" -- with banking, stock market, and governmental blessing -- began to change the impetus driving our economy from making our own HIGH-QUALITY goods to simply re-selling someone else's MEDIOCRE-QUALITY goods.  "Experts" can break out as many white papers, pie charts and bar graphs as they like -- but the root cause of our demise is that this culture, as a whole, stopped "Making Good Stuff & Making Stuff Good."  Everything that has happened to us as a country, economy and culture can be traced back to this tragic deviation from our heritage as an industrialized nation.

Aug 6, 2011 12:03PM
The US deserves the lowest credit score possible based on their mishandling of finances. When consumers handle their finances poorly, their credit rating falls through the floor. What makes the government any different than an American?
We have a government that is completely ill-managed, fraught with fraud, abuse and criminality, overspends, under-performs, and wastes billions every month...Anyone who doesn't understand that the root problem is SPENDING and not revenue has no idea how badly our government operates with OUR money.
Karma is a bitch...USA should have been downgraded in 2009 after the 2008 financial fiasco.
Aug 6, 2011 11:59AM

Well folks, let's see we have the VAST MAJORITY OF AMERICAN WEALTH now concentrated into the hands of the VERY TOP and THEY have DECIDED NOT TO PAY TAXES ON IT. Well, then... I guess that would create a bit of a problem. AND of course the solution is that the OTHER 95 PERCENT OF AMERICANS WITH CONTROL OF ONLY 5 PERCENT OF AMERICAN ASSETS AND WEALTH, can what? CARRY THAT BURDEN?


Taxes should be PROPORTIONATE,  and these NUT JOBS suggesting FLAT TAXES/ SALES TAXES, obviously do not understand that A LOT OF AMERICA IS STUCK IN MINIMUM WAGE JOBS AND ARE GOING INTO FORECLOSURES RIGHT NOW, obviously THEY are NOT the ones who should be expected to PICK UP THE SLACK.


WE HAD A REDISTRIBUTION OF AMERICAS WEALTH, AND SINCE IT TRICKLED UP, NOT DOWN, IT MUST NOT BE "SOCIALISM" rather it is exactly what FDR SAID IT WAS, FASCISM where Capitalism ends up being a victim of it's own power abuse and GREED, where far too much of the wealth and assets got concentrated into the hands of those who find they can make EVEN MORE, by not paying reasonable taxes and by FIRING WORKERS rather than HIRING WORKERS. The ONLY tax WELFARE should be a DIRECT BENEFIT for HIRING an UNEMPLOYED WORKER. NOT AN EMPLOYED ONE, AN UNEMPLOYED ONE.



And do you suppose that maybe allowing groups like ALEC to exist, ALLOWING KRAFT FOODS TO WEIGH IN ABOUT HOW THEY WANT TO MAKE IT MORE DIFFICULT FOR LEGAL AMERICAN VOTERS TO VOTE IN ELECTIONS (hmmm does THAT sound AMERICAN to you?) or how we now have COCA COLA WRITING THEIR OWN DAMNED LEGISLATIVE PROPOSALS AND HANDING THEM TO THEIR BOUGHT-AND-PAID FOR RETHUGLIKKKAN/T-TRAI​TORS iN CONGResS.  Does THAT sound like the government we are SUPPOSED to have? A government BY and FOR... THE CORPORATE OPPRESSORS? And they HAVE become oppressors, like SPOILED children who refuse to follow ANY rules, because they don't think the RULES apply to THEM.

According to the CITIBANK MEMO leaked in 2005, we live under the rule of the wealthy elite and just don't know it. Their hope is that folks like JOE THE DUMBER PLUMBER don't wake up and SMELL THE COFFEE instead of getting suckered into drinking poisoned TEA, good for them and BAD FOR HIM.

They state that the ONLY way for AVERAGE PEOPLE to get POWER BACK, is through VOTES and TAXES.

Well they succeeded in getting away without paying their fair share of TAXES for the last DECADE, now they are focused on RUNNING INTERFERENCE WITH AMERICANS VOTING. SO DO CHECK OUT ALL THE CHANGES IN YOUR STATE, AND MAKE SURE YOU HAVE ALL THE RIDICULOUS ID OF THE RIGHT SORTS, AND DO NOT ALLOW THIS CORPORATE TAKEOVER OF RETHUGLIKKKANS AND THE CORPORATE PLUTOCRATS TO SUCCEED. It is the only chance we have to EVER recover from this, these corporations could care less if they turn America into a land of dead dreamers, they LOVE operating in THIRD WORLD COUTRIES, they are ALL ABOUT MAKING MORE OF THEM!

Aug 6, 2011 10:43AM

Whatever happens will of course fall on the people to pay for and the politicians know it. Get ready to lose more of  your 401K, your pathetic savings, and maybe your home if you have managed to hang onto it, and keep on driving your gas guzzling car which drinks 4.00  a gallon gas because you can't afford a new one.

The shame of what has happened to this country rests squarely on the shoulders of politicians like Nancy Pelosi;("come on let's pass this health bill so we can find out what's in it") and others  like her.

In other countries such worthless low lives would be stripped of their office and run out of town on a rail. In America we re-elect them again and again and then then we sit around and wonder what happened to our country, to our 401K, our children's heritage. Go figure!! 


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