August 5, 2011
According to ABC News , the bond rating agency Standard & Poor’s is ready to downgrade the rating of U.S. debt from its current AAA value.
The downgraded rating will be either AA+ or AA.
Officials say the reason for the downgrade is political confusion surrounding the recent debate about raising the debt ceiling and a lack of confidence that the government will be able to reduce its profligate spending.
In mid-July, Standard & Poor’s placed the U.S. government on “CreditWatch with negative implications.”
“[O]wing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days,” the agency said in a statement .
A downgrade will have a negative effect on U.S. bonds. The government will have to pay a higher interest rate to bond investors and the bonds would be considered a riskier asset. Investors instead would look to Germany, France, Great Britain and Canada as a more reliable investment.