Standard and Poor’s on U.S. Credit By Hope Wilkos, Writer/Blogger
The United States credit rating is at risk based on a warning by Standard and Poor’s. Our world generosity is not without its consequences. Once the word got out earlier this week, the Dow Jones plummeted by 240 points. After the dip in points, prices for U.S. government debt began to rise.
What this actually means is that when a country has mounting debt, such as the United States, Standard and Poor’s lowers the credit rating because of the risk that a country will not be able to pay its debt. Borrowing rates rise and that means higher interest payments for the government.
Bond prices fall thus making bonds a more attractive investment option because of their stability.
This scare has prompted the House Budget Committee and President Obama to meet to discuss ways to shrink the budget deficit in order to reduce the long-term debt.
As an added twist, if a plan is put into place too quickly, it could affect the economic recovery of our country with a negative impact. Cutting spending and raising taxes would lead the government to sell fewer Treasury’s. A drop in supply would push Treasury prices up.
Standard and Poor’s has merely lowered its outlook for the United States from negative to stable but we will see how we fare over the next couple of years.
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