With debt ceiling deadline looming , There is a talk of credit downgrade of US which might happen even if there the debt ceiling issue is averted temporarily as the interest rates and payments of the US government are far higher to warrant a credit downgrade.
History of US Govt credit downgrade
Things are tense – For now
What happened when US debt was downgraded last time?
“The S&P 500 fell 19% when US debt was downgraded in 2011, taking more than four months to recover losses; Treasury bonds rallied despite their being explicitly downgraded amid a flight to quality” – BofA
- Not saying the downgrade will happen for sure as its US govt and these credit agencies are basically left with very little credibility of their own. But, if it happens, markets can get lot volatile. Here’s the tricky part, news sounds gloomy but markets are at the cusp of fresh highs. What to trust? Price or news? it’s upto us.
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Markets are chill abt it. But, the deadline is coming fast. Even if the ceiling is raised, the issue will crop up once again due to higher interest rates
These people give credit rating of BBB- to India & AAA stable to USA
Value of HQ printer and powerful military
As widely expected, US govt reaches a deal with republicans to raise the debt limit for 2 years. Spending cuts were decided to be at 50 billion dollars which is just ~ 0.2% of the GDP and final voting to be done on Wednesday.
As this was widely expected, market may not react too much to it and infact may see profit booking sometime this week after the news is out
With extremely limited spending cut and adding atleast 4 trillion dollars as debt , this is for sure an inflationary move and should result in higher inflation going forward
The part where it gets tricky is …US is already having interest rates at 5% now, how long can they sustain these levels needs to be tracked. Something has to break and it looks like the economy will…
