What does it mean that the United States was downgraded by Standard and Poor’s? Essentially, it means that the credit score for the USA has taken a hit, just as any individual would take a hit if their financial outlook took a downturn. For individuals a lack of budgeting leads to increased debt, defaulted lines of credit, risk of foreclosure and, eventually, financial ruin.
S&P’s is one of three major credit rating agencies. So what does it all mean for the average person?
Making Sense Of Things
The average person won’t feel the direct effect of the downgrade. Mostly, the downgrade affects the global confidence in the U.S. economy and consequently, the U.S. relationship (i.e. borrowing money) with our financial peers. Uncertainty in the will cause fluctuations in the stock market. In the immediate days following the announcement, the market has tumbled. Whether the market remains depressed remains to be seen, but it’s highly unlikely that the severity of the initial deflation will remain permanent.
The U.S. now carries an AA+ rating. This is one step below the best (AAA) rating. What this means is that the U.S. as a country is still a very strong economy, but present and projected circumstances show that there is a risk for long term risk to financiers. This doesn’t mean that financial default is imminent, only that the credit reporting agencies doing the calculations, acknowledge that it’s more of a possibility given the current financial climate.