The U.S. Credit Rating Drops

Concerns over the fate of the U.S. economy have become a trending topic in recent months. With the debt ceiling debate raising fears, last week’s dual party compromise brought a minor sense of relief among Americans.  Since President Obama signed the budget agreement, many have been anxiously awaiting the next step to see how the budget agreement will affect the country.  One decision comes as a surprise to some, but expected by many.

Credit Downgrade

The S&P has decided to “downgrade” the country’s credit rating for the first time in history.  What does this mean exactly? A credit downgrade refers to the drop in credit standing, which is based on things like credit history, financial stability and safety of investment. When the credit history become tarnished, financial stability is a risk or suffering and investments become risky, the credit standing is impacted. The process is similar to that of the private credit standing of an individual. The difference is the U. S. credit standing plays a major role in the global economy. Any changes to the economy and credit standing of the U.S. are likely to affect the rest of the world.

‘Excellent’ Credit Standing Stripped

The U.S. credit standing is rated by national credit rating agencies Fitch, Moody’s Investment Service (“Moody’s”) and Standard and Poor (“S&P”).  These agencies determine the government’s creditworthiness and safety of investments. The higher the rating- the more creditworthy and the less risk involved in investments. The U.S. has positioned itself among the top of the credit rating with a triple A, or AAA, rating. This top credit rating once indicated the U.S.  markets were among the safest for investments; but the U.S. has been removed from the list of risk-free borrowers, as shown by its new AA rating.