In fact, it might be good news or an early warning
Here is why:
- Strong underlying fundamentals: Despite our govenment’s best efforts, he American economy remains fundamentally robust and has a diversified economic base. Strong economic performance, low unemployment, and stable fiscal policies are equally and, in the long term, more important than a simple credit score.
- Confidence in the economy: Investors and markets still have confidence in the country’s ability to meet its obligations, even with a slightly lower rating. Dollar is still the most popular currency in international trading BY FAR. All countries deposit or use assets directly linked to the American economy. If the federal government decides to stop playing with the debt ceiling, the ensuing financial stability can bolster this confidence.
- Temporary nature of the downgrade: Fitch ratings are not fate or destiny and, as the economic crisis of 2008 has proved, not always trustworthy. Same goes for the other credit score agencies such as Standard & Poor’s and Moody’s. Fitch’s outlook suggests the downgrade is temporary and conditional on specific factors improving.
- It can be fixed: Instead of looking for chinese or russian intervention, the government might be prompted by this downgrade to take corrective actions to address economic weaknesses. Implementing prudent fiscal and monetary policies can help regain investor confidence and stabilize the economy.
- Global economic conditions and the rising trend of interest rates: Now is not the time to accumulate more debt. It’s costly and it’s used ineffectively (no surprises there). An incentive NOT to issue new bonds is a not-so-hidden blessing.
