The USA's Credit Rating Downgrade.

After I went to bed on Friday (5/8/11) night it was announced that the credit rating agency Standard & Poor (S&P) had downgraded America's credit rating AAA- to AA+. This means that America has moved from having the top level credit rating to one level below but it is more likely that it will move back up the scale rather then fall further down. This has been done because the analysts at S&P think that the Budget Control Act 2011 will push the US economy back into recession making it more difficult for the country to pay it's debts.

Although serious this is not as dramatic as it first sounds. There are actually three accepted credit rating agencies in the industry; S&P, Moody's and Fitch and S&P have always been seen as the most provocative. If Moody's and Fitch don't follow S&P's lead then very little will happen and S&P will probably put America back on AAA- after a short while. Even if Moody's and Fitch also downgrade the US credit rating then it won't necessarily mean that the cost of America's borrowing will suddenly shoot up because credit ratings are only non-binding guides and lenders consider lots of other factors before making lending decisions like setting bond yields (interest rates). For example China only started buying up Greek debt once everyone knew it was junk and there was no credit rating downgrade before the interest rates on Spanish and Italian debt was increased.

Elsewhere Eurozone leaders have this evening (7/8/11) being holding a telephone summit to discuss the current crisis over Spanish and Italian debt. In Enfeild, north London some teenagers have been throwing some stones at the riot police and there have been various unconfirmed reports of rioting at multiple locations in London.

So when they open tomorrow I think the American and European financial markets will be a very stressful place. The Asian markets will also be very stressful and open in a few minutes. The middle eastern and New Zealand markets which are already open have seen loses including the US dollar dropping to it's lowest level on the New Zealand market but they're only really allowed to play with themselves.