What Downgraded Credit Rating Means For You

MINNEAPOLIS (WCCO) — It’s been two days since Standard and Poor’s announced its decision to strip the United States of its sterling credit rating. Now, many wonder what that means for consumers.

The credit rating agency lowered the nation’s AAA rating for the first time since granting it in 1917. Standard and Poor’s, commonly known as S&P, is one of three main credit agencies, while Moody’s Investor Service and Fitch have not elected to downgrade.

The speculation now is the possibility of seeing marginally higher interest rates. Economists explain a lower rating causes investors to demand a higher interest rate to reward them for the risk.

Ultimately, for consumers, it means borrowing costs across many different spectrums will rise.

WCCO-TV talked to a financial consultant who said there is no set way to tell exactly what will happen. Bruce Helmer with the Wealth Enhancement Group said this being the first downgrade since 1917 means there’s a lot of speculation.

Helmer also said the bad news comes at a bad time.

“After the market lost 669 points last week, and then Friday night we get this news,” Helmer said.

He said there’s reason to believe the timing was deliberate.

“To send the message to say ‘you guys need to get together and work together better.’ And in fact, in their verbiage, in their narrative that goes along with the rating, they as much as said that,” Helmer said.

So what does Washington’s wrist slap mean for everyday consumers? Right now the speculation is that because of the downgrade, consumers will be less attractive to global investors.

“[This] means we’ll have to raise our interest rate or pay them more to get them to buy our bonds. That has a ripple effect on consumers in that we pay more at the pump, for groceries, on our mortgages, on our credit card bills,” Helmer said.

Helmer is very careful to point out however, while that rise may happen relatively quickly, he believes it will be negligible.

“I don’t believe it will be that significant. I don’t believe long-term it’s anything to worry about,” said Helmer.

He said historically, when other countries have received a downgrade, they did not see a significant rise in their interest rates. He said add to that the fact the U.S. has had a top-tier credit rating for 70 years.

“Is the U.S. government and is the U.S. debt still a safe investment? I think most of the world is going to say ‘We still like the United States of America,'” Helmer said.

However, that’s not to say economists and analysts alike think the short-term could bring some unwelcomed surprises.

If interest rates go up and you already have a loan, your lender is not going to change the terms and conditions of that loan.

As far as whether the U.S. is at risk for more downgrades, Helmer said since the S&P assigned a “negative” outlook to the country’s long-term credit rating, there could be another downgrade in the next 12-18 months if there’s not improvement in reducing the country’s debt.

  • M B

    Blame it on the liberals. Blame everything on the liberal. It’s so much a laugh when I hear people like you using blanket blame that I;m surprised you didn’t hav a rubber stamp made of it.
    I got in an accident: Blame the Liberals!
    My wife left me because she said I was too annoying: Blame the Liberals!
    The sun exploded and toasted the earth: Blame the Liberals!
    I would suggest maybe looking at yourself and your own party with the same critical eye you seem to reserve for the opposing side before you are so quick to blame.

  • O-done-a

    Seriously folks, S&P is a unit of McGraw-Hill, no joke. These incompetents didn’t even see the financial crisis of 2008 coming. When all those banks were in trouble—well, everyone of ‘em had an AA and higher rating before they “fell” to the collapse. Along with all the CDO’s (toxic assets—credit swaps tied to sub-prime mortgages) that all held big ol’ triple A ratings. INCOMPETENT!! Then, S&P sat there butts in front of a full-on congressional hearing and stated that all S&P’s ratings are “just opinions”. I’m not taking away from the fact that we got downgraded. I’m just saying, what a flippin’ joke! What the real question is—and should have been addressed by cco is—what happens to all the retirement accounts that can’t hold anything under a triple A rating? All those U.S bonds need to come out. What then? I’m gonna wait for Moody’s and Fitch before I get nuts. S&P, time for your credibility to collapse. Long over due.

    • Redneck Purist

      O-done-a: “Excuse department, O-done-a speaking, can I help you?”
      Liberal: “Do you have any good excuses for the down-grade?”
      O-done-a: “Well blaming the refs is really popular, you know how they favor the clowns who want to reduce the debt, would you like one of those?”
      Liberal: “I dunno, how about blaming the Tea Party, got any of those left?”
      O-done-a: “Sorry that one just flew off the shelves early on, no one’s buying it anymore.”
      Liberal: “How about we just admit we’re clueless and jump out the window?”
      O-done-a: “For heavens sakes, no, we’ve got to prop Obama up, that would send the wrong message.”
      Liberal: “So what should I do, this looks like our fault?”
      O-done-a: “Just pop another Qualude and ride it out. That’s what I do.”
      Liberal: “OK, thanks a lot.”

  • Malthus

    Republicans are bad but Democrats are ten times worse.

    Never, ever, ever vote for a Democrat.

    Unless, of course, you want to see this country fail.

    • WE

      It will fail because of the Repubicans.

    • Get a clue

      Deregulation and lack of tax hikes have left us in the mess. If you don’t make a million dollars a year and vote republican, you’re an idiot.

    • Wearejustasstupidastheyare

      They both are equally bad neither one of them are working for us they are working for themselves doing what they want to do, they don’t listen to us yet we are all idiots and vote them in. Don’t blame one over the other because they are both to blame not one of them idiots on Capital Hill is better than the other.

      • Aquila Thick Chick Rogers

        Now this is a comment that I can agree with! Both sides are responsible, and althought they claim to be doing things for the American people, judging from the WH/Gov’t actions, I conclude that they really don’t have us in mind.

  • impeach congress

    We need to stop catering to the banks and corporations who drained our economy and resources into offshore accounts and then left us for dead

    • jmj

      And what about the Unions and government employees?! Everyone is to blame.

  • Captain America

    We need to freeze Gov. spending and starting in 2012 reduce the spending 1%,repeat that for the next 6 years and we will balance the budget. The politicians can allocate the cuts and some areas will be cut more and some less. Then install tax reform to make our countries businesses more competive by lowering the corp. tax rate amd installing aflat tax to simplify our tax code and promote growth, next eliminate taxation on overseas profits that are already taxed overseas and the 2 Trilliion in cash stashed overseas willl start to come home hiring American workers.

  • Angus

    The problem is the Tea Party fanatics that are using the economy in their effort to gain power. They are not concerned that people are being hurt, nor are they concerned about what they do to the country. They are also white and financially well off so the effect on them is minimal. I suspect many of the rich are waiting for the stock market to drop further and then move in to buy stock at bargarin prices, “It’s the American Way – buy low and sell high”. They claim to be Christians but their god is the $.

    • cry me a river

      Oh poor, poor, Angus. You must really be a dismal failure.

  • I'm just sayin

    One could easily argue that this is the democrats fault, since they have been in charge of the checkbook for the majority of the past 40 years, when all of the debt has been accumulated. One could also argue that our current mess with social security and medicare is also the democrats fault for the same reason. You could easily argue it is the republicans fault for two unfounded wars, and tax cuts, but what good would it do? We currently are screwed and our legislature is going to screw us even more by taking away the money they claimed to be putting away for us for our old age.

    So what are you going to do about it? Who’s fault it is could easily be blamed on one party or another, but will that fix the problem? The problem is that WE PUT THEM THERE because of partisan politics. We allowed them and listened to them talk us into this one issue is so important that the rest of their policy and taxation and spending was minor, and now we are all in this mess TOGETHER. There will always be party hacks on both sides of the fence, but unless you get involved at the ground level and stay invovled and push moderates on both sides of the isle, we are more screwed than any of you could imagine. so, what are you going to do about it? Sit on your butt and point fingers over the internet, or get up off your rear and go to caucuses, and the following two meetings and make sure that your party hacks do not get elected and that people that work for you and have financial restraint. Your decision, will you try to make this a better country or just sit here on the internet and whine? By the way, I do nto vote for any party, I vote for the best person for the job based on my beliefs.

  • dan

    Geitner needs to find a new job. The Hoax he has pulled over the US taxpayers is amazing. He has no idea what drives an economy or builds jobs. This downgrade falls squarly on this administrations inability to manage the economy.
    The TeaParty blamers need to think a bit. The TeaParty and Republicans only control the House. The Senate and Presidency are run by Democrats. Had the administration taken on all the cuts requested by the Tea Party we would not have had the downgrade. If you listen to S&P’s explanation its because we did not cut deep enough and the budget passed was weak and ineffective – much like our president.

  • Sandra

    You can blame the “tea party” all you want, but this was a long time coming, well before the “tea party” ever came into the spotlight. The TRUTH is we have career politicians on both sides of the isle to blame for this. They had every opportunity to make common sense decisions in the past to prevent this, but did not, so BOTH parties are to blame.

  • Reasonable

    Worth mentioning is that S&P is the same rating agency that called CDO’s sound investments… That they made a multi-trillion dollar error in their calculation should come as a surprise to no one. However, the recalcitrant statement that there’s no revenue increase on the horizon in the midst of a contracting economy is certainly enough reason to lower a rating.

    Cut spending 10%, raise taxes 5%, put the difference towards debt service. Political suicide yes, but it’s what needs to be done to save the country from the last decade of failed leadership.

  • Waste

    Wow, our country just went through the worst economic news in a long time, and this paper says nothing?

    Cme on, get some articles out there on the financial collapse.

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