As of yesterday the USA credit rating is now set at AA+ the second such downgrades in 2000. In fact up until 2011 it was spotless with at AAA rating until that year when it received it's first downgrade.

We can look at what that downgrade meant back then and what this one could bring. In fact you can already see the repercussions of it all in the stock market where the S&P dropped and Dow DJIA dropped.

The people that issue these ratings are know as Fitch and they pretty much give credit ratings to all countries much like a credit rating you might have yourself. It let's the world know how trust worthy you are. The United states has always been at the top which means the country always pays back its debts and on time.

To put that into context right now Russia is running a C recently downgraded from a B.

So what's caused the downgrade for the US?

Fitch's report shows that this doesn't happen over night however there is a steady deterioration in the standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until Jan 2025. The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.

The three main factors of this are

Erosion of Governance

This area main focuses on that big topic we happen to hear about every other year just about. That's the debt ceiling. In simple terms it means the government has to increase the ceiling in order to increase spending.

Why it's important is that it also includes the interest payments on the bonds that other countries have with the USA. So you can imagine if you had a trillion dollars invested in the USA via a bond and they waited to the very last minute to approve the spending and put your 1 trillion dollar bond investment at risk it would be a HUGE disrespect to you including US citizens and government workers. You can see how this contributes to the erosion and trust of governance.

Rising Government Deficit and High Debt Levels

It's easy to sum this one up. I took this screenshot last night...

Now go look at USDebtClock.org and compare that US national debt level and you'll see just how out of control it is. In just the time it took me to take that screenshot and write this little bit a total of 2 million dollars was just added to the debt.

We have also seen the fed increase rates which also means that pesky little 652 billion dollar number you see in red towards the middle is climbing and it's climbing fast.

How Does It Affect Citizens

For most of us we only care that the government does it's job, looks out for it's people and works on those massive large projects that wouldn't be possible otherwise. However what we are seeing is a constant battle between parties, a massive waste of funds and overall a complete distrust in the government which is only getting worse.

What does come into factor is the next president. If one where to come in and want to start to really tackle this issue we would most likely see increased taxes while spending remained the same. For some reason people and government have a very hard time trimming down expenses and instead simply try to get more and more money.

Next comes in the factor of the country borrowing more money. These are known as bonds and can be picked up by just about anyone from your normal citizens to other countries taking on those bonds.

The kicker here is that those new bonds are tied to the federal funds rates or those FED interest rate hikes we keep seeing.

Overall this rate doesn't mean much if anything there might be a small uptick on the bonds interest rates because it's a more riskier investment or so said then when it was a AAA and now is a AA+ however for the most part it's felt around the world and citizens that the USA would always pay back their debts.

The other thing it causes and we are seeing is volatility in stock markets. Which isn't always a bad thing for investors as a stagnate stock market makes for some rather lame trades. You'll notice this over the last 72 hours of trading on the S&P and Dow Jones.

While this credit rating isn't a big deal and most likely wont be in my lifetime it does mean that the USA needs to start bucking up and getting a little more serious about how it manages its debt and stop running things to the wire.

Another downgrade and constant distrust in the government could mean a lose of faith in the USD and it's already got some competition with BRICS at the moment (while not a great one it's still competition that didn't exist until 2 years ago.

Does that mean Crypto is not a great investment and safe haven? Who knows all of this is a lot of luck, trust and hopefulness that what you have will retain and go up in value based on many many factors that can randomly take place.

Posted Using LeoFinance Alpha