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What is the effect of the downfall of the U.S. credit rating to the global economy?

August 13, 2011


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Standard & Poor’s has withdrawn the top credit rating from the United States because its debt keeps rising. The US had received AAA, the highest rating since 1941. The world's largest economy has lost the best mark as a reliable debtor the first time in history. The financial markets took this change very negative. But this is a turning point now, not a catastrophe.

Lower credit grading makes US treasury bills less attractive, therefore financing costs of the state may rise. On the other hand, when stock prices are decreasing, investors look for safe investment opportunities, that may result in an increased demand for government securities.

The present rating, AA + is a good note, and the market for US treasuries is still the most liquid debt market. China is supposed to continue to buy US treasury bills as there is no real alternative. The downgrade is a warning Washington to take effective measures in order to handle debt.

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