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.
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 Bankrate.com 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.
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:
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.
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.
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."
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!
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.
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.
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 if they don't want to, fine NO MORE TAX HANDOUTS FOR THEM IN THE FORM OF SUBSIDIZED ANYTHING!
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-TRAITORS 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!
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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