In my previous post, I discussed the fact that the United States losing it’s AAA rating could have far reaching an in-depth effects. What I didn’t talk about was what would happen if there was a split decision. Looks like we have a 2-1 in favor of AAA rating so far. S&P downgraded the U.S. to AA+ on Friday after the markets closed, which is probably for the best. An announcement like that during the trading day could have had some disastrous effects.
That aside, how important is this?
At this point, I think it’s unclear. Add to the fact that the S&P analysis was flawed (they were off by $2 TRILLION – yes, you read that right) because of an overestimate in the U.S. deficit. S&P admitted the mistake but did not change their opinion.
Do I NEED to go into the credibility issues of this? Maybe not, but I will.
Remember how our last recession started? AAA rated package loans. Clearly their analysis was flawed then. When something that calamitous happens, you HAVE to get something like the United States debt correct. If you don’t, your credibility takes even more damage.
My opinion – Don’t listen to anything the ratings agencies say. I am hoping at some point, they just abolish them.