Fitch Ratings has downgraded the United States’ credit rating, moving it from AAA to AA+. This marks just the second time in the history of America that the country’s credit has been lowered to this level.
Many analysts are now concerned that the credit downgrade could have huge implications for the overall economy and for the finances of everyday Americans, especially if the total amount of debt in the U.S. continues to increase.
In announcing its decision to lower the U.S. credit rating, Fitch officials said the debt load in the country that continues to balloon, combined with a weaker governance, were reasons for the decision. The agency also said that it expected America to enter into a recession later on in 2023.
Some analysts tried to downplay the immediate aftermath that could happen in the economy. That being said, they added it is a significant milestone as the nation tries to increase debt, which could raise how much it costs to borrow money – just as many American families are experiencing right now.
Many analysts also said that fallout from the decision could be weaker economic growth and even further interest rate hikes for loans on mortgages and credit cards.
One economic expert who sounded the alarm on the credit downgrade was Kevin O’Leary, the chairman of O’Leary Ventures who is probably best known for his appearances on the investment TV show “Shark Tank.”
Appearing on the “America’s Newsroom” program on Fox recently, O’Leary said:
“There is no way to sugarcoat this at all. It’s bad. And I’ll tell you how you measure it’s bad. Basically, when you downgrade the U.S. economy, which is what this downgrading is, you are losing a little faith in the U.S. dollar and the U.S. Treasury bill because the default currency of the world, defined by every commodity priced by U.S. dollars, is the good faith of the U.S. government and the whole world.
“Trust it. Most sovereign funds keep the majority of their liquidity in U.S. dollars. That got hurt 24 hours ago because now you start to ask yourself, well, where is this going? A downgrade from AAA to AA, does it go to single? Now, if you’re a sovereign wealth fund, you start to put that in your mind.
“And the bottom line for you and me is the cost of capital goes up. In other words, what it costs for us to borrow money to fund the government and deficit goes up. No sugarcoating that.”
U.S. officials didn’t agree with the credit rating downgrade, and tried to sound a positive voice to the American people in the wake of the announcement. For instance, on Tuesday, Janet Yellen, the U.S. Treasury Secretary, issued a statement that said:
“Fitch’s decision does not change what Americans, investors and people all around the world already know: that Treasury securities remain the world’s pre-eminent safe and liquid asset, and that the American economy is fundamentally strong.”