Arab Today, arab today impact of us downgrade uncertain
Last Updated : GMT 21:17:01
Arab Today, arab today
Arab Today, arab today

Impact of US downgrade uncertain

Arab Today, arab today

Arab Today, arab today Impact of US downgrade uncertain

Washington - AFP

Given the size of the US economy and the preeminent role of the dollar worldwide, the cut to Washington\'s credit rating ought to spill over throughout the global economy.But for the same reason -- that the dollar and US debt are so widely held and relied on in finance and trade -- many analysts think the impact will not be too heavy, at least in the short run.Standard & Poor\'s cut the US\'s top-rank triple-A rating down a notch, to AA+, for the first time ever on Friday, technically signaling that the country\'s reliability for paying its debts had decreased.S&P rejected Washington\'s efforts to demonstrate it had embarked on a clear path to slash the country\'s deficit and reduce its debt load.The debt burden topped $14.6 trillion this week, 100 percent of GDP, virtually the same ratio as Italy, whose debt has been dumped in markets over rising default fears. Meanwhile the government continues to borrow some 40 cents for every dollar it spends, while the economy is barely growing and unable to generate the revenues needed to support its fiscal path.The consequences of a downgrade are difficult to predict. Japan, cut twice in the past decade to stand at AA now, has a debt-to-GDP burden over more than 200 percent, but continues to pay extremely low rates to borrow.Goldman Sachs warned last month in a study that the consequences of a downgrade were not easily foreseen.\"The size of the United States economy and Treasury market and the dollar’s status as a reserve currency make it impossible to find a clear historical parallel for the current situation,\" the powerful investment bank -- itself a key dealer in Treasury bonds -- said.Theoretically, the ratings cut should at least raise the borrowing costs of the government, to rates higher than AAA countries like Germany, and serve as a warning to get its fiscal house in order.Moreover, it should push down the dollar\'s value relative to other currencies from strong economies.And because the dollar and Treasuries are so crucial -- China alone holds more than $1.1 trillion worth of US debt and Japan, $900 billion -- any questioning of Washington\'s ability to pay its debts should unnerve the global financial system.\"The recovery has lost momentum, the US is up to its neck in debt and the Federal Reserve is considering more stimulus,\" Kathy Lien of forex experts GFT said last week.\"If the US loses its prized AAA rating, it will truly be the straw that broke the dollar\'s back.\" \"Different types of events have happened in history and we know to some extent how markets react to those events,\" said Owen Fitzpatrick of Deutsche Bank.\"But here we never had a credit downgrade. It\'s unchartered territory.\"But Goldman says the impact should not be large, and markets suggested the same ahead of the downgrade.In the first place, it said, \"A downgrade should not force sale of Treasuries.\"Indeed, with a possible downgrade looming, the price of Treasury bonds soared to their high this year on Thursday, the yield falling to its lowest level.And the Treasury easily auctioned off tens of billions of dollars of new debt this week. Goldman did say there could be a \"modest\" selloff in stock markets, and a sign of that was clear Friday when the Dow Jones Industrial Average suddenly plunged more than 400 points, or nearly three percent, after rumors of an imminent S&P move hit the market. Even so, the market regained 300 of those points at closing despite the downgrade still hanging in the air.In the banking market, where US debt is a key currency for lending and collateral, the impact could be more disruptive.That is especially true in the interbank \"repo\" market, where banks swap bonds for cash to balance their books short-term.Goldman says the value of US bonds in that market could fall by one percent after a downgrade, raising costs for banks.Clearly hoping to mitigate the impact on financial institutions, the Treasury quickly issued a ruling Friday evening that said the risk weight of US debt in their reserves would not change despite the downgrade.But many expect the impact to be seen on institutions which rely on the US government guarantee for their bonds, like heavily indebted home lenders Freddie Mac and Fannie Mae -- and the biggest banks which rely on the government\'s implicit regulatory \"too big to fail\" guarantee.Their borrowing costs could shoot up, and that would spill over into higher mortgage costs and possibly bank lending rates for the average person.Meanwhile, liberal economist Paul Krugman, writing in The New York Times, questioned Standard & Poor\'s ability to pass sound judgment on issues like countries\'s sovereign debt ratings, saying \"it’s hard to think of anyone less qualified to pass judgment on America than the rating agencies.\"\"The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?,\" asked Krugman, a Nobel Prize winner.

arabstoday
arabstoday

Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

Arab Today, arab today impact of us downgrade uncertain Arab Today, arab today impact of us downgrade uncertain

 



Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

Arab Today, arab today impact of us downgrade uncertain Arab Today, arab today impact of us downgrade uncertain

 



Arab Today, arab today
Arab Today, arab today Designer Aql Faqih aspires to innovation

GMT 18:41 2017 Friday ,20 October

Designer Aql Faqih aspires to innovation
Arab Today, arab today Malaysia Airlines picks new CEO

GMT 12:54 2017 Saturday ,21 October

Malaysia Airlines picks new CEO
Arab Today, arab today Etiquette expert underlines importance of gifts

GMT 17:52 2017 Sunday ,03 September

Etiquette expert underlines importance of gifts
Arab Today, arab today Residents get glimpse of Raqa in ruins

GMT 07:10 2017 Saturday ,21 October

Residents get glimpse of Raqa in ruins
Arab Today, arab today Hiring not part of Alibaba pledge

GMT 11:26 2017 Wednesday ,18 October

Hiring not part of Alibaba pledge
Arab Today, arab today
Arab Today, arab today
Arab Today, arab today World's deepest lake in peril

GMT 15:54 2017 Friday ,20 October

World's deepest lake in peril
Arab Today, arab today Ex-French minister Dati wants tough action

GMT 10:54 2017 Thursday ,19 October

Ex-French minister Dati wants tough action
Arab Today, arab today Delhi braces for pollution 'airpocalypse'

GMT 16:07 2017 Friday ,20 October

Delhi braces for pollution 'airpocalypse'
Arab Today, arab today The history of solar eclipses

GMT 05:16 2017 Sunday ,20 August

The history of solar eclipses
Arab Today, arab today EU raids automaker BMW

GMT 11:06 2017 Saturday ,21 October

EU raids automaker BMW
Arab Today, arab today Sweden to get biggest car factory

GMT 14:10 2017 Friday ,20 October

Sweden to get biggest car factory
Arab Today, arab today Actress Mona Zaki praises husband’s role

GMT 08:15 2017 Thursday ,19 October

Actress Mona Zaki praises husband’s role
Arab Today, arab today Massacre fears spark race

GMT 19:09 2017 Thursday ,19 October

Massacre fears spark race

GMT 08:57 2017 Wednesday ,18 October

Actress Shery Adel happy for Egypt’s qualification

GMT 18:15 2017 Monday ,16 October

British actress becomes fifth woman

GMT 16:53 2017 Tuesday ,05 September

Youssra depended on colored foam

GMT 16:00 2017 Wednesday ,18 October

Climate-disrupting volcanoes helped topple

GMT 10:46 2017 Saturday ,05 August

Nanis reveals simple ideas for home renovation

GMT 09:56 2017 Friday ,20 October

Privacy Groups Warn of Perils

GMT 08:04 2017 Thursday ,19 October

Second US judge orders freeze

GMT 17:12 2017 Monday ,07 August

Al-Shawaifi reveals secrets of total solar eclipse

GMT 20:46 2017 Thursday ,19 October

Qualcomm files lawsuits in China to ban iPhones

GMT 16:53 2017 Saturday ,02 September

Mai importance of gifts during Eid Al-Adha
Arab Today, arab today
Arab Today, arab today
 
 Arab Today Facebook,arab today facebook  Arab Today Twitter,arab today twitter Arab Today Rss,arab today rss  Arab Today Youtube,arab today youtube  Arab Today Youtube,arab today youtube
arabstoday arabstoday arabstoday arabstoday
arabstoday arabstoday arabstoday
arabstoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabstoday, Arabstoday, Arabstoday