U.S. Credit Rating Downgraded. Duh!

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Well we couldn’t have timed it any better. Less than 24 hours after we published a scathing opinion on the state of the U.S. economy, S & P downgraded the U.S. cedit rating from AAA to AA+. This will lead to an increase in interest rates, a further decline in business lending, and a possible further slide in the stock market.

When rates rise, bond values go down. But higher yields are likely to make Treasury bills a more attractive investment for earnings, especially with the stock market being as volatile as it has been recently. This could cause investors to pull funds out of stocks and replace them with Treasuries. After all, the U.S. Government’s credit rating is still a AA+, with negligible risk of default. Who wouldn’t want a higher yield on U.S. backed bonds?

But since virtually all forms of borrowing in this country are tied to Treasuries in some regard, interest rates will increase across the board. That’s bad news for businesses who require loans for startups, expansion, advertising, inventory, growth, and other reasons. It may discourage them from moving forward and it just as well may encourage banks to step up rejections. Banks could determine that the additional cost in interest is too much for the borrower to sustain and therefore decline a loan they would’ve approved months ago.

Only time will tell… 

– The Merchant Cash Advance Resource


Last modified: August 25, 2011
Sean Murray

Category: Uncategorized

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