US Credit Rating: AAA Rating Downgrade To Affect World Stock Markets

By on Aug 7, 2011 in Business, Economy, Finance, Stock Market, United States, World Comments
US credit rating
US Credit Rating AAA cut to AA+
Image Credit: CNBC

US credit rating of AAA was downgraded to AA+ by Standard and Poor’s (S&P) on Friday, August 5, 2011, as reported by several international news sites.

Analysts reportedly predict that US credit rating downgrade will have a great impact over the world markets starting on Monday’s trading.

According to a statement provided by S&P, the world’s leading credit rating company have lowered the “long-term sovereign credit rating on the United States of America to ‘AA+‘ from ‘AAA‘ and affirmed the ‘A-1+’ short-term rating.”

The US credit rating downgrade has prompted China to raise the call for a new stable global reserve currency. China blamed the US for its credit rating problems. A Chinese statement said that “The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone.”

Credit rating indicates the credit worthiness of a particular country and is considered as a financial guide to investors of debt securities that include bonds issued by a government.

Among the leading credit ratings company are S&P, Moody’s Investor Service and Fitch Rating. Bond ratings are expressed in letters.

S&P’s US’ “outlook on the long-term rating is negative.” The credit rating company added that they “could lower the long-term rating to ‘AA‘ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.”

Republican House Speaker John Boehner admitted that “decades of reckless spending cannot be reversed immediately, especially when the Democrats who run Washington remain unwilling to make the tough choices required to put America on solid ground.”

Democrat Senate Majority Leader Harry Reid pointed the finger on Republicans for refusing to cooperate in correcting the American economy.

S&P explained that the rating means that “the political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed.” The credit rating company added that “the statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.”

In contrast to S&P’s US credit rating downgrade, Moody’s and Fitch affirmed the US AAA credit ratings last Aug 2.

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