Originally posted elsewhere on 4/18/2011
- S&P rates outlook on U.S. debt as negative. An analyst at National Review, explains what happens if U.S. treasury bonds are actually downgraded:
The journey to insolvency can be quick, or it can be slow, but most analysts agree that the first signpost along the way will be the withdrawal of the U.S.’s coveted AAA bond rating. And when that happens, woe be unto him that owns government bonds.
Throughout modern history, the U.S. has had a relatively low cost of funds because Moody’s and the other ratings agencies have given it the highest rating possible. If Uncle Sam loses that rating, then borrowing costs will increase. These higher costs will make the U.S. fiscal situation more untenable, inviting subsequent downgrades and an ultimate death spiral that can be stopped only by massive policy intervention.
According to the Wall Street Journal, an S&P analyst:
puts the chance of the U.S. losing its coveted AAA rating within two years at one in three.