The U.S. credit downgrade: 4 predictions
What does Standard and Poor's controversial decision mean for Wall Street investors, Main Street Americans, and beltway politicians?

Stocks dropped sharply in the U.S. and around the world on Monday, as investors reacted to the news that Standard and Poor's had stripped the federal government of its top-notch AAA credit rating for the first time in history. In a "remarkably blunt" statement explaining the unprecedented downgrade to AA+, the ratings agency said it no longer considers U.S. Treasury bonds to be an essentially risk-free investment because Washington is running up mounting deficits with no real plan to reduce them. What ramifications can we expect from the downgrade? Here, four predictions:
1.The economy will plunge into another recession
The Dow Jones Industrial Average plummeted more than 500 points by mid-afternoon on Monday. With the threat of a double-dip recession looming, says UBS markets strategist David Cassidy, as quoted by Australia's Herald Sun, the downgrade, which threatens to send interest rates higher, has torpedoed everyone's sense of well-being and sent stocks into a nosedive. That only worsens the "negative feedback loop," making another recession more likely than ever.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
2. Our lawmakers will shape up — or be shipped out
Members of both political parties should view this downgrade "as a last-chance wake-up call," says The Baltimore Sun in an editorial. We have no choice now but "to reject both far-right and far-left doctrine on the deficit. Neither a hard line on taxes nor entitlements is what the nation needs right now." If our leaders can't grow up and achieve "genuine compromise," maybe in 2012 voters will "put centrist pragmatism back in the nation's capital."
3. Despite the downgrade, treasury bonds will remain the "gold standard"
In this topsy-turvy economy, every investment has become riskier, say Min Zeng and Cynthia Lin at The Wall Street Journal. As one big-time trader put it, "Double-A-plus is the new triple-A," and U.S. Treasury bonds remain "the world's gold standard." Japan and China, which both own massive amounts of U.S. debt, won't be dumping their holdings. If anything, nervous investors might snap up U.S. debt because it's less risky than everything else, which will send interest rates down, not up.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
4. S&P's credibility will be shot
This is "amateur hour" at S&P, says Paul Krugman at The New York Times. The Treasury Department put out a fact sheet showing that S&P analysts overshot deficit projections to the tune of $2 trillion, something "real budget experts" would never have done. These guys clearly don't even understand "basic analysis of budget estimates." Really, Krugman says, S&P is "the last place anyone should turn for judgements about our nation's prospects."
-
Scientists want to fight malaria by poisoning mosquitoes with human blood
Under the radar Drugging the bugs
By Devika Rao, The Week US Published
-
Crossword: March 31, 2025
The Week's daily crossword
By The Week Staff Published
-
Sudoku medium: March 31, 2025
The Week's daily medium sudoku puzzle
By The Week Staff Published
-
The JFK files: the truth at last?
In The Spotlight More than 64,000 previously classified documents relating the 1963 assassination of John F. Kennedy have been released by the Trump administration
By The Week Staff Published
-
'Seriously, not literally': how should the world take Donald Trump?
Today's big question White House rhetoric and reality look likely to become increasingly blurred
By Sorcha Bradley, The Week UK Published
-
Will Trump's 'madman' strategy pay off?
Today's Big Question Incoming US president likes to seem unpredictable but, this time round, world leaders could be wise to his playbook
By Sorcha Bradley, The Week UK Published
-
Democrats vs. Republicans: who are the billionaires backing?
The Explainer Younger tech titans join 'boys' club throwing money and support' behind President Trump, while older plutocrats quietly rebuke new administration
By Harriet Marsden, The Week UK Published
-
US election: where things stand with one week to go
The Explainer Harris' lead in the polls has been narrowing in Trump's favour, but her campaign remains 'cautiously optimistic'
By Harriet Marsden, The Week UK Published
-
Is Trump okay?
Today's Big Question Former president's mental fitness and alleged cognitive decline firmly back in the spotlight after 'bizarre' town hall event
By Harriet Marsden, The Week UK Published
-
The life and times of Kamala Harris
The Explainer The vice-president is narrowly leading the race to become the next US president. How did she get to where she is now?
By The Week UK Published
-
Will 'weirdly civil' VP debate move dial in US election?
Today's Big Question 'Diametrically opposed' candidates showed 'a lot of commonality' on some issues, but offered competing visions for America's future and democracy
By Harriet Marsden, The Week UK Published