For the first time in history the USA debt has been downgraded from the top AAA rating to AA+. Why did it happen? What does that mean? Who cares?
The S&P said specifically that the political environment in Washington was the main thing that had changed since their last analysis. They cited the recent debt deal debate as an example of how uncertain outcomes in Washington. In particular, they said that both Democrats and Republicans unwillingness to compromise played a major impact in their decision. Indeed, the S&P warned Washington earlier this year what it would take to prevent a downgrade, but instead of heeding the warning both sides played politics. Both sides lost Friday with the downgrade.
What does this debt downgrade all mean? The bottom-line for the average American is that interest rates on almost everything will likely rise. Credit cards, home loans, car loans, etc… The rise may not be much more than 1%, but even that 1% can be significant over time. The bad news is that with the economy already very weak, taking more spending power out is exactly the opposite of what we need to help the recovery. Unfortunately, that is exactly what the downgrade will do.
Who cares? Well everyone should! This is a big deal! The first time in history a major credit agency has said that the USA’s debt is not as stable as Canada! What an insult! The S&P directly stated that it is the deadlock in Washington that caused this to happen. We need to all be proactive in getting our representatives to work towards compromise to solve our problems. Drawing lines in the sand and saying its our way or the highway is the problem in Washington today. That needs to stop now!