US Credit Rating in Danger of Slipping to AA+ and Possibly Lower

Standard and Poors credit rating of Belgium and United States might be equal very soon - IllustrationWhat might the United States and Belgium have in common very soon?

The answer? AA+ credit ratings, courtesy of Standard and Poor's.

As has been mentioned in the media quite often as of late, the major credit rating agencies are threatening to downgrade America's pristine AAA credit rating.

Standard and Poor's has been particularly outspoken, claiming that they could downgrade the nation's credit rating to AA+ even if a debt ceiling agreement is reached by August 2nd. Standard and Poor's has stated that heavy cuts ($4 trillion over the next ten years or more) will have to be made in order to ensure that the United States keeps its AAA credit rating.

S&P has also said that there is a 50% chance of a downgrade within the next three months.

The other countries with perfect credit ratings right now are:

Hong Kong
Isle of Man
New Zealand
United Kingdom

If the United States has its credit rating downgraded to AA+, then they will join Belgium as the only nations with AA+ ratings from Standard and Poor's.

If the United States eventually has its credit downgraded two notches from its current level (AAA to AA), then they would join countries such as Bermuda, Chile, China and Qatar as countries with AA credit ratings (assuming that those countries don't have their ratings changed in the meantime).

The problem with a credit rating downgrade? The cost of borrowing increases.

With a AA or AA+ credit rating, the United States would have more risk as a borrower, so they would have to pay more to borrow money. This would increase the nation's borrowing costs (I've heard that a credit downgrade could cost the United States an extra $100 billion a year in debt servicing costs), which would in turn make the cost of borrowing money more expensive for everyone else in the country.

Source: Standard & Poor's - Sovereigns

Filed under: General Knowledge

Related Articles