Monday, August 8, 2011

Standard & Poors Downgrades US Credit Rating

US Credit Rating Downgraded by Standard & Poor's

This has been the most happening as well as shocking news of the past few years. Standard & Poors, one of the premier credit rating institutions has downgraded the Credit Rating of United States of America from AAA to AA+. We are going to look at what this is and why this happened in this article.

So, lets get started!!!

What is a Credit Rating?

A Credit Rating is a score that is given to every organization & country by credit rating institutions like S&P, Moody's, Fitch etc. This score is assigned to these parties based on their Creditworthiness or in simpler terms, their ability to repay debt.

You can find more information on what a Credit Rating is, and the ratings that can be assigned to organizations by clicking here

So, What Happened?

Credit rating agency Standard & Poor's has downgraded its top notch credit rating, stripping the world's largest economy of its prized AAA status.

This is what S&P had to say:

"We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA'"

For now, S&P has not spelled out what the US has to do to regain its AAA rating. However, it said "it's going to take a while to get back to AAA".

The other rating agencies, Moody's and Fitch, have said they have no immediate plan to downgrade the US credit rating, giving the government more time to make progress on debt reduction.

Will this impact the world economy negatively?

For now, NO.

Since, the other 2 premier rating agencies are yet to downgrade their credit ratings of USA, there is still hope. Significant consequences would be set off only by a reduction in rating by two or more agencies.

What does this mean for the USA?

The lowering of the country's rating could rattle investor confidence and raise borrowing costs for the government and consumers, impeding the already fragile recovery. But, AA+ is still a great rating and if the US government takes steps to stabilize its debt and financial position, it may regain its AAA status very soon.

I know that, after reading this post, you may have many questions. They are all covered in the next post.

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