The United States on Friday has officially lost it’s AAA rating with Standard and Poor (S&P). This is a disastrous turn of events for our economy, as the world loses a bit of faith in the United State’s ability to pay off that which it is lent. Reuters reports:
(Reuters) – The United States lost its top-notch AAA credit rating from Standard & Poor’s on Friday, in a dramatic reversal of fortune for the world’s largest economy.
This new twist of events is likely to effect many markets around the globe, negatively impacting the prices of many things today, with the exception of Gold, which doesn’t seem to be going down in value any time soon. In fact, according to David Merger, Vice President and Director of Metals Trading with Vision Financial Markets in Chicago…. It could even have a positive impact on Gold.
“One would expect the S&P downgrade to positively impact safe haven assets like gold, which continues to lead the safe-haven asset class. But, because the move was widely expected, we probably won’t see a huge move on this news. The industrial metals, like copper, may get hit from the move, because it will add to the already weak economic picture that sent it down today. Silver has been a laggard, and it has an industrial component, so it may not be able to benefit as much as gold. (Reuters)
Another area that will likely be impacted by this is municipal bond markets. The majority of these have collateral on U.S. Treasury securities.
Greg Salvaggio, Senior Vice President of Tempus Consulting, is really quite “fired up about it”, saying that S&P are moving too quickly with their ratings, and that their numbers are false. He believes they should be acting more like Moody’s and Fitch:
“What Moody’s and Fitch have really quietly agreed to do is say, ‘We are going to wait and see what the commission comes up with before a downgrade,’ but S&P went ahead and did it anyway with numbers that were wrong.
To avoid a downgrade, S&P stated that the United States needed to not only raise the debt ceiling, but also develop a “credible” plan to tackle the nation’s debt in the long term.
In its report Friday, S&P went and said that the United States fell a bit on the short side:
“The downgrade reflects our opinion that the … plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.” -S&P
Regardless of who’s numbers are right though, S&P has declared that the United States is only worthy of a double-A-plus rating, and this is going to have a ripple effect for a little bit on Monday when the markets open up. I wouldn’t count on the markets doing too hot when the opening bell sounds on Monday.
You can read the lengthy story, and catch all of the details via REUTERS
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