The Meaning of the Credit Downgrade
From an article in the Wall Street Journal last week; the points are still relevant and helpful now that the downgrade has actually happened:
Even without a debt default, it looks increasingly possible that the world’s credit rating agencies will soon downgrade U.S. debt from the AAA standing it has enjoyed for decades.
A downgrade isn’t catastrophic because global financial markets decide the creditworthiness of U.S. securities, not Moody’s and Standard & Poor’s. The good news is that investors still regard Treasury bonds, which carry the full faith and credit of the U.S. government, as a near zero-risk investment. But a downgrade will raise the cost of credit, especially for states and institutions whose debt is pegged to Treasurys. Above all a downgrade is a symbol of fiscal mismanagement and an omen of worse to come if we continue the same habits.
The rest of the article gives a good summary of how we got here, recounting the road all the way back to FDR. It’s worth a look.