Monday, the firm ratings of Standard & Poor has lowered its rating of the United States prospects to negative. Well that the Agency did not actually lowering its highest rating AAA on the debt of the country, it was the first time since the beginning of the s. & P. assigning perspectives in 1989 as the country gave an outlook that was other than that of stable.
While it was not completely unexpected, the s. & P. decision is misplaced debate of deficit in the nation from the political arena - at least for the day - and pushed it to Wall Street. The action frightened investors, sending three major stock indexes fell more than 1%.
The yields of Treasury Board, or the interest rate that the country pay its debt, spiked immediately after the announcement. Given that the United States has outstanding debt of more than 9 billion owed to the public, even a tenth of a percentage increase in could potentially add billion deficit over time.
Government lower credit ratings may also be hurting consumers in the Pocket as the Treasury yields also affect rates on loans for consumption, particularly mortgage loans.
"If the United States gets downgraded, the cost of the issuance of new debt permanently increase,", said Guy LeBas, Chief Strategist for fixed income for Janney Montgomery Scott. "It is a question of how that much.".
Cabinet of Mr. LaBas estimated in a study of this year that there could be a 6 to 6.5% decline in U.S. stocks more three months after any downgrade. Russell t. Price, a senior economist with Ameriprise Financial, said that any decommissioning could also affect perceptions of the dollar and possibly trade.
"Even a small increase in the rate of interest being charged on that debt could significantly increase the U.S. deficit problem," he said.
Monday, the market is much more low in reaction to the news. The Dow Jones industrial average closed 140.24 points, or 1.14% lower, to the 12,201.59. It is the largest Dow decline since March 16.
500-Stock s. & P. broader index decreased 14.54 points, or 1.1%, to 1,305.14. The technology-heavy Nasdaq lost 29.27 points, or 1.06%, to 2,735.38.
Stocks also declined, on the whole of the Asia-Pacific region, Tuesday at the start, with the Nikkei 225 to the Japan index drop of 1.5% by the middle of the morning. Singapore main index fell 0.6% and Australia, index s. & P./ASX 200 fell by 1.3%.
In its decision, unit ratings of standard & Poor has issued a strong warning for heads of Government to agree on how to address the medium and long term budget challenges in 2013.
"More than two years after the start of the recent crisis, U.S. policy makers have still not agreed on how to reverse the recent fiscal deterioration or financial pressures in the long term of address," said Nikola g. Swann, the Standard & Poor credit analyst. The firm said that it was a chance for one to three might lower its rating in the long-term on the United States in two years.
The statement initially made investors nervous Treasury bills, sending the yield on the 10-year benchmark Treasury bond as high as 3.45%. At the end of the day, the performance dropped to 3.37%, from 3.41% Friday. The price of the 10-year bond to 9/32 to 102 2/32.
Previously, on 14 January, the s. P. & and another major agency of credit ratings, Investors Service of Moody, warned that the United States could tarnish his triple-A credit rating, if its national debt continued to grow. At this time, the administration of Obama was made warning that the Government could reach its limit of legal loan a few months and urged the Congress to raise the debt ceiling to avoid a default.
Administration officials played in the assessment of the s. & P. Monday reiterating the determination of the State of Washington to reach a compromise on the deficit.
Officials of the Treasury Board "believe negative outlook of the s. & P. underestimates the ability of American leaders to gather for the difficult fiscal challenges facing the nation", Deputy Secretary for financial markets, Mary J. Millersaid in a statement.
Austan Goolsbee, President of the Council of economic advisers to President Obama, said in an interview with Bloomberg TV that President Obama in a recent speech had said that there would be measures taken to promote financial responsibility.
He said that "political judgment" s & p must not be given "undue weight".
Carl Hulse and Bettina Wassener contributed reporting.
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