What the Credit Rating Downgrade Could Mean for U.S.

s&p standard and poorsLast week, Standard & Poor’s (S&P) downgraded the credit rating of the United States from AAA to AA+. This marks the first time in U.S. history that this has ever happened. We even managed to keep our credit rating under President Carter, when mortgage interest rates were well into the double digits and you could only buy gas on certain days of the week.

But does it matter?

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S&P is a credit rating agency that, well, rates the credit-worthiness of public and private corporations, and issues reports and grades based on their analysis. They use statistics to figure out if someone is more or less likely to pay back any money they borrow. The higher the score, the more likely someone is to not default on their loans.

If you’ve ever made a major purchase like a car or a house, you know that higher credit scores translate into better interest rates, among other goodies like bankers not laughing in your face when you turn in a credit application. The higher your credit score, the more trustworthy you are to a lender.

A triple-A rating is the highest one issued by S&P, and was enjoyed by the United States for close to a century. Experts disagree on what the downgrade to AA+ means; some say it doesn’t matter much, while others say this is a serious wake-up call to politicians to stop throwing us deeper into debt. 

One thing is certain: Despite the increase in the debt ceiling last week, economic uncertainty still looms. Businesses are still not hiring. The stock market is ... not doing well. We are still borrowing over 40 percent of every dollar we spend. 

The issue is how much we spend, not how much we can borrow. S&P Chief David Beers says the downgrade is not about either political party; it’s about the spending. The entitlement spending is out of control and about to get worse with the first round of baby boomers retiring this year, Obamacare coming into full effect soon, and ATMs continuing their rampage against the economy.

Just kidding on that last one. I think.

 

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