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U.S. Credit Rating Is In Danger

U.S. Credit Rating Is In Danger

Unless you’ve been living under a rock for the last year or so, you are aware of the United States federal government has been trying to raise the debt ceiling to cover their cost of running the country. During that time, credit rating companies, Moody’s, Standard & Poors and Fitch have been debating whether or not to lower the credit rating of the U.S. from it’s current (and long time) rating of “AAA” to something else.

Congress and the Obama Administration have been wasting time of the last three months that has now left little chance of the country’s rating to stay the same. Last October, S&P wrote that they were keeping a stable outlook on the U.S. “AAA” rating on the ground of the current entitlement spending pressures wouldn’t really affect the country in any big way within the next three to five years. Then in April, S&P shocked Washington as well as Wall Street by changing their views and putting a negative outlook on the U.S. rating, saying that there was a one-in-three chance of a downgrade withing two years. It didn’t end there, last week Standard & Poors announced that there is a 50% chance that the credit rating could be downgraded within three months.

All three agencies agree that the U.S. must undertake a major deficit-reduction effort for the near term to stabilize debt levels and to preserve it’s credit rating. The reason for the quick deterioration of the agencies outlook is mainly because of the concern they have of Congress and the Administration not being able to work together. The federal government has forgotten how to work together. The political divide has grown too much to the point where the credit agencies wonder if they’ll be able to work together on other fiscal issues in the future. It doesn’t help that Congress hasn’t put forth a budget for over 800 days.

Even though Moody’s give the U.S. a little more room before they would lower the country’s rating, that’s because of the United States’s reserve currency status. S&P said that if the U.S. rating is downgraded, the country may see interest rates climb 25-50 basis points and reduce GDP by a similar amount.

For those of you who feel like I do about the stability of the country’s economic position, I’ve been increasing my position in the precious metal/commodities sector. I’m not sure if the federal government will ever do the right thing.

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One Response to “U.S. Credit Rating Is In Danger”

  1. Bill Kruse says:

    What I find most disconcerting is the speed and willingness with which S&P moved to downgrade the States compared to to how it looked the other way for years leading up to and during the credit crunch. It suggests they were on one agenda then and a different one now – but what? Is this evidence of the ‘banker wars’ rumours that are floating around?

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