Now that S&P has downgraded our credit rating to AA+ AND warned of possible future downgrades to come, now that other countries' credit ratings show they are a lower risk, what is going to happen?
China is already lashing out at us as "the US' biggest creditor" to stabilize our fiscal future.
Here is a video, made during the debt limit debate, that shows what could happen.
If the player doesn't work, try this link:
http://www.youtube.com/watch?v=BbOO3w43AJc&feature=player_embedded
The thing to remember is that higher interest rates are NOT automatic. Interest rates on the national debt rise and fall based upon what creditors are willing to accept. If folks are still willing to buy our treasuries at the same interest rates, then nothing will happen. If, however, they begin to balk, we will have to raise our interest rates in order to find a buyer. If that happens, then interest rates on everything else will rise to match. You'll pay more interest on loans, credit card debt, and so forth.
But, as I said, increased interest rates are not a given. They won't automatically happen. Much depends on how potential buyers feel about the S&P downgrade come Monday.
Stay tuned.
Saturday, August 6, 2011
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Kind of a blessing in disguise to have this occur on a Friday night. My bet is that bonds on Monday kinda stay at the same level and don't get yanked around much. As for stocks? Well....if I were a betting man, I'd bet on a 100-point drop in the stock market on Monday....and mostly stagnant numbers for the rest of the week (no real big losses, just no one doing much).
ReplyDeleteHere's the big issue. Tons of people are sitting on cash now (no stocks or bonds). They might sit for thirty days, but not much longer than that. A savings account won't pay nothing. Banks will reach a point next week where they refuse more CD requests. So where else to put your money? Back into stocks within thirty days.
The AA-plus rating will simply be this anchor on the President's election, and have minimum effect on the average guy in America over the next eighteen months. As for this super-committee who are supposed to cut the gov't budget? They might be under triple the pressure that they had last week....to cut the budget. I wouldn't want to be on the committee for million dollars.
It is in quotes but, as I am sure you know, China isn't our largest creditor, but our largest foreign creditor.
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