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The US downgrade

“…a steady deterioration in standards of governance.” That’s the summary used by Fitch to justify a downgrade on the US full faith and credit. The US debt is now rated AA+ instead of AAA, after the debt ceiling negotiation, the rapid increase in debt, and the overall lack of fiscal discipline shown by the US government. The timing of the decision seems a little off, since most of the reasoning to support the downgrade is a few months old, but nevertheless, it shouldn’t surprise anyone. One of the potential effects of the downgrade is, maybe, a little increase in the funding costs for all dollar denominated debt. Additionally, It’s not clear if the two companies with better rating than the government, Microsoft and JNJ, will be downgraded as well or will be allowed to maintain their AAA rating. Ironically, the fact that inflation has been high over the last 18 months, benefits the ratio of debt to nominal gdp, but the rapid increase in debt is a red flag that rating agencies will not take lightly.


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