(Image source: Bloomberg/The New York Times)
BY TRACY PFEIFFER
ANCHOR BLAKE HANSON
You're watching multisource business video news analysis from Newsy.
They warned it could happen.
And late Friday night--it did.
Ratings agency Standard & Poor’s made the historic move -- to downgrade the United States’ long-term credit rating -- for the first time.
MSNBC explains the significance of going from AAA -- to AA+.
“Standard & Poor’s has taken the U.S. down a notch after the long, protracted debt fight in Washington. This means Standard & Poor’s considers Canada, France, and the UK more creditworthy than the U.S. The country’s credit rating is now on par with Belgium and New Zealand and just one step above Bermuda, Kuwait, and Spain.”
In a statement, S&P explains -- it really is about the debt drama.
“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. More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened...”
But what does it all mean? CNN’s Felicia Taylor says -- although it may take some time -- average Americans could see the price of borrowing -- on mortgages for example -- go up. And it won’t just be the United States seeing effects.
FELICIA TAYLOR, CNN: “Everything just got more expensive as a result of this because investing in the United States just became riskier. …That also translates to foreign investors. When they hold significant amount of debt in the United States, such as our treasuries, and China would be number one, they have about a trillion dollars worth, that also becomes a little riskier for them. And the question becomes, are they going to sell off some of their holdings?”
And speaking of China -- the downgrade prompted a statement from the country’s state-run Xinhua -- warning the United States to get its debt under control.
“China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets. To cure its addiction to debts, the United States has to reestablish the common sense principle that one should live within its means.”
But don’t panic just yet -- says a writer for Forbes -- because S&P is currently alone in its assessment.
“...the decision about what is an AAA asset isn’t taken by one ratings agency alone. It’s the average of the three major agencies that matters. As long as Fitch and Moody’s keep their AAA rating then technically the US is still rated AAA. S&P on its own changes pretty much nothing.”
When S&P’s report was initially released, the U.S. government pointed out its estimates were about $2 trillion off -- but the agency said even so, that did not change its opinion on the U.S. rating.
Transcript by Newsy.
