Friday night Standard & Poor’s took the unprecedented step and downgraded the U.S. credit rating for the first time ever. The rating dropped from AAA to AA+ after the debt ceiling deal failed to satisfy worries about the state of the economy and the ability of the US to raise enough revenue to match spending obligations.
The impact of a credit downgrade could mean higher borrowing costs for consumers and businesses and it becomes more expensive for the U.S. to borrow money. State and local governments will feel an impact in funding, especially schools and parks. The first indication of a wider reach will happen Sunday night with the open of the Asian markets.
In the announcement S&P laid out blame squarely on the dysfunction in Washington, paying specific attention to the use of the debt ceiling as a partisan bargaining chip.
The U.S. long-term credit forecast was also negative, but with one bright spot. Let the Bush tax cuts lapse, the report said, and the debt dynamics should change enough to stabilize the long-term rate at AA+.
Raising interest rates on struggling consumers and state and local governments at the same time drastic programmatic funding cuts take place is precisely the thing to drive this country back into a deep recession. Which, given the statements by Republican leadership, looks more and more intentional.
Photo from artemuestre via flickr.
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