The US loses its AAA credit rating from S&P - Not good but maybe not as bad as feared
9 August 2011 - Click here to read the full article.....
Key points
- Ratings agency Standard & Poor's has followed through with its threat to downgrade America's sovereign credit rating. Budget savings fell short of the desired levels thought to stabilise the debt to gross domestic product (GDP) ratio, so America's rating has been downgraded from AAA to AA+.
- The impact this downgrade will have on US borrowing costs is likely to be minor, although the market will be swamped by the impact of weak economic growth and safe haven demand for bonds.
- Over time it could be a positive for the currencies of other AAA rated countries including the Australian dollar (A$) and Singapore dollar, but in the short term it only adds to existing uncertainty.
- The downgrade should have been priced into share markets already, but it reinforces pressure around fiscal tightening in the US as well as being a blow to US confidence.
- While shares could remain volatile for a while, there are indications that policy makers will swing into action, with reports the European Central Bank (ECB) will buy Italian and Spanish bonds while the G7 leaders commit to a liquidity injection to stabilise markets.
