For the first time in history, the United States government lost its perfect AAA credit rating from S&P on Friday, August 5th, 2011. The decision was made because of the growing debt problem America faces — a problem that isn’t going away.
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.
The recent downgrade will lead to higher borrowing cost for the United States, which could translate into higher interest rates for businesses and consumers. S&P has been threatening to downgrade the U.S. for months, but Washington has refused to take heed.
Other agencies, such as Moody’s Investors Service and Fitch Ratings, still rate the United States AAA, but have threatened to take action if Washington does not rein in their debt problem. Maybe this will be a wake-up call for Washington that recklessly spending trillions of dollars and kicking the fiscal can down the road isn’t the perferable way of solving America’s economic problems.Published in