November 25, 2017

USA loses AAA credit rating

Standard & Poor's credit downgrade has taken America into new territory. Welcome to the real world.

Standard & Poor’s has downgraded the United States’ top AAA rating for the first time ever.

S&P cut the long-term US rating by one notch to AA+ with a negative outlook, citing concerns about budget deficits.

The agency said the deficit reduction plan passed by the US Congress on Tuesday did not go far enough.

There has been no move from the other two main agencies and that limits the impact of the S&P decision.

But some analysts say the measure will push up payments on federal debt by as much as $75bn (£45bn) a year.

The theory is, that would trickle down into higher interest rates for US states, businesses and individuals.

John Chambers, chairman of S&P’s sovereign ratings committee, told CNN that the US could have averted a downgrade if it had resolved its congressional stalemate earlier.

“The first thing it could have done is raise the debt ceiling in a timely matter so the debate would have been avoided to begin with,” he said.

The other two major credit rating agencies, Moody’s and Fitch, said on Friday night they had no immediate plans to follow S&P in taking the US off their lists of risk-free borrowers.

The downgrade is a bit of a wake-up call to the US that it cannot continue to live beyond its means. Economically the US has lost its edge. There are plenty of economies in the developing world who are hungrier for wealth than the US.

Desperation to create wealth was always America’s competative advantage. Now it seems that many want the trappings of wealth without the sweat that it takes to generate it.

The US government, business and private individuals have ended up turning to credit to attain wealth, rather than earn the things they crave. It is a house of cards that cannot stand. The 2008 credit crunch was a wake-up call that not many seem to have taken notice of.