The Crisis Over The Debt Ceiling Crises

S&P is a rating agency. They serve people who invest money. Let us say that I have $1,000, and I want to buy some stocks in a company. Which company should I choose? There are many ways to choose, but one help is a rating agency like S&P. If I look up Apple computer company, at the S&P, I'll find they have a AAA Rating. That's the best. Now that doesn't mean there is no risk, but I can trust that as far as S&P knows, Apple computer is a safe investment. They are not broke, and won't crash tomorrow. Similarly, if I look up NCR Corp, they recently spent $1.1 Billion, and don't have any money. Thus they have a high risk, and likewise, S&P lowered their rating to BB-, which is junk status. So I likely wouldn't buy their stock. Bonds are the same thing, and thus government bonds have ratings too. In order for rating agencies to keep their position in the market, to keep people coming to them for ratings, their ratings must be honest and valid. Thus S&P has lowered the US government rating to AA+, which is one notch below AAA. So what does that mean? Well not much. Remember S&P is one of three or four rating agencies, and they are the only one that has lowered the Gov's rating. Yes, there might be a wave in the stock market, because the stock market is driven on emotions. A tiny thing can cause massive waves in the stock market, but there isn't much to worry about there. So what does this mean for the government borrowing money? Well again, not much. The rating drop is a sign to people buying bonds, that possibly US Government bonds are not as safe as they once were (which is true). As such, the US government might have to slightly increase the interest it pays on bonds, in order to get people to buy them. As a result, the cost of borrowing may go up. I would wager not by much though. The real meaning behind this is that our government is borrowing too much money. That's it. We're borrowing too much. We can't afford all these government programs. In the future if we do not change course, our rating will continue to slide until we can't get people to buy our bonds anymore. When that happens, the government will be unable to borrow money to keep paying for these programs. This will be a national government shut down. But this doomsday situation will only happen if we don't stop doing what we're doing. If we stop, we can change this. In the short term, this is just a warning sign. There is no impending doom right now.

S&P doesn't think that the US will do anything about the debt. If I was Obama I would tell S&P to know its role and just calm down. The United States has routinely raised its debt ceiling even when times are good. The 90's and early 2000's were a great time of prosperity and the debt was still there. Its mostly political as to why all this is happening now. Its a shame.

I don't understand it at all. But this guy does - Credit Downgrade for Dummies on HuffPost: http://www.huffingtonpost.com/jonathanmiller/credit-downgrade-for-dummies_b_920116.html Hope it helps.

No, I don't quite understand the whole process either. What is that mean that the United States will downgrade its credit rating. It is that mean we did default on some of our debts, especially the one for domestic bond holders or something like that? Our AAA rating suddenly go down to AA + only.

as far as i can tell what S&P seem to have decided is that it is the politicians who are incompetent, and though the debt ceiling was raised, it was done so badly that they are worried about the credit worthiness of the US, which is quite bizarre as you are competing with the european union for the title of world's largest economy. and should be able to pay your debts extremely easily, were it not for the politicians. there is also concern over the plans for cutting the deficit, as cutting the deficit only by spending cuts, rather than by also raising taxes, is likely to impact on growth, and lower it further. the problem is made worse, because the options for monetary simulus are now almost non existent, as tbey are too expensive, or, in the case of quantitative easing, too inflationary. economics and layman's language don't really go together, but don't be fooled, the use of difficult language is only an attempt to confuse you, while behind your back the financial and corporate sector do outrageous things. they are trying to blind us with science!