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Saturday, August 06, 2011

S&P Downgrade of USA to AA+

The United States has maintained the highest credit rating for decades. S.& P. first designated it AAA in 1941, reflecting a steadfast belief that the richest nation in the world would not default on its debt payments. The rating was also bolstered by the role of the dollar as the world’s leading currency, ensuring that demand for American debt securities would remain strong in spite of burgeoning deficits.


Remember when Rumsfeld was denigrating Old Europe (France, Germany, Scandanavia, UK) all of which have AAA ratings.


“What’s changed is the political gridlock,” said David Beers, S.& P.’s global head of sovereign ratings, in an e-mail several days before a debt ceiling agreement was announced. “Even now, it’s an open question as to whether or when Congress and the administration can agree on fiscal measures that will stabilize the upward trajectory of the U.S. government debt burden.”


Experts say the fallout could be modest.


The federal government makes about $250 billion in interest payments a year, so even a small increase in the rates demanded by investors in United States debt could add tens of billions of dollars to those payments.


In addition, S.& P. may now move to downgrade other entities backed by the government, including Fannie Mae and Freddie Mac, the government-controlled mortgage companies, raising rates on home mortgage loans for borrowers.

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