What the S&P Downgrade Means to you and Me
by Allen Gilmer
S&P lowered the US debt rating from AAA to AA+ on Thursday. What does this mean to you and me? Well, S&P is only one of three debt rating services, and the other two have said they aren’t going to downgrade, but this is historic, nonetheless.
When your debt grade goes down, your cost of borrowing goes up. This sad fact is NOT lambasted when you are a basic middle class person. It is made out to be the crime of the century when applied to “the poor” by the socioeconomic class divide and conquer folk. It means we have too much debt to handle safely.
Applied at the personal level… that bad credit folk either can’t get a bank to loan them money or that they are charged higher rates to make up the risk of default. When we do stupid things out of feeling sorry for bad risk folks, like guaranteeing their payments, we typically end up… making their payments.
So the cost of Fed Money is going to go up some amount. Since the Fed is the source of all funds, this means that interest rates at banks will go up, mortgage interest rates will go up, and the general cost of borrowing money will go up.