We may have dodged the default bullet, but “it’s only a matter of time before the U.S. loses its stellar AAA rating,” said Nin-Hai Tseng in Fortune.com. Several rating agencies signaled this week that they wouldn’t downgrade U.S. credit immediately, but that doesn’t mean they were impressed with the debt deal. If a downgrade does come, it “will underscore just how deep the nation’s debt problems have become.”
The prospect of the U.S. being slapped with AA status is “not good, full stop,” said David Wessel in The Wall Street Journal. The sky probably won’t fall, though. Because of the sheer amount of government debt issued, even a minor hike in interest rates would be very expensive for the government. But “there’s no way to know for sure” whether a lower rating will trigger such an increase. A major sell-off of U.S. Treasury bonds is unlikely because big holders of government debt, such as mutual funds, insurance companies, and foreign investors, have nowhere else to go. Even AA-rated bonds will still be considered one of the world’s safest places to park your money. In fact, in “an ironic twist,” a downgrade could actually cause Treasurys to rally, said the Financial Times. Investors might flock to them because the bonds would surely be the safest AA-rated product on the market. After all, “a bet against the richest and most powerful country on the planet is never a safe one.”
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