Connecting The Debt Ceiling Scandal And The Rating Downgrade

Standard & Poor’s credit downgrade of the US on August 5, 2011 shocked the whole world. Not a few thought that the financial markets would suffer after the credit downgrade.

S&P blamed the downgrade to the US debt ceiling brouhaha.

According to Standard & Poor’s, the controversy regarding the US debt ceiling as well as the debate on the US government’s fiscal policy indicate the unstable condition of US governance and policy making.

The Debt Ceiling Debate

The Budget Control Act of 2011 was the result of several months of bickering among members of the US Congress.

The US Congress held debates on increasing the debt ceiling which was at $14.294 T to avoid a default.

The law was passed on August 2, 2011, the same deadline that the US Congress had been given as the US Treasury had earlier reported that the nation’s debt would hit its ceiling.

The US Congress was being egged by many to work on the bill even before the deadline of August 2, 2011. The US Treasury warned that failure to increase the US debt ceiling on time will translate to debt default and consequently an economic crisis that can affect the US for many years.

The credit ratings agency said both Republicans and Democrats had their hand in the debt ceiling debate for concurring on unexceptional savings, as shown by the law cutting only about $2.2 billion in government spending in the next decade.

Standard & Poor’s said its credit downgrade is also a result of the US government’s failure to act on what the credit rating agency believes is necessary to stabilize the US credit dynamics. Experts believe that S&P pointed to Republican lawmakers for shutting down proposals for higher taxes to be given to some US citizens while Democrats were also blamed for not agreeing to spending deductions. The bottom line is this behavior spurred uncertainty in the market and compelled many investors out of stocks and into precious metals and Gold IRAS.

While it took time for US Congress to enact on the legislation, it also didn’t help that the public grew weary of the representatives hurling accusations against each other. US President Barack Obama, through his spokesperson Jay Carney, had intimated how the debate had become divisive and took too long to finish. The US president also reiterated his wish that US politicians will work together with the administration to tackle the major economic and monetary problems of the United States that are compelling investors to flee the stock market and seek safety in Gold and Precious Metals IRA accounts.

How Credit Downgrade Will Affect Economy

S&P’s negative take on the debt ceiling and its subsequent downgrade of the US credit rating has sparked poor performance in most stock markets around the world nd a flight to safety into Gold IRA accounts. The development is also seen to hike interest rates especially since the US government and businesses will need to borrow money for their respective projects. The credit downgrade is expected to affect the US economy particularly its recovery from the 2008 financial troubles.

The lower credit rating means more taxes for the ordinary American.