NewLife

FINANCE: The lower note of the United States could increase their debt

Not since their sovereign debt is assessed by rating agencies, the United States had lost their prestigious "AAA" rating, which allowed investors to buy U.S. debt and repayment to ensure this term.

But Friday night, one of the three most influential rating agencies, Standard & Poor's (S & P) lowered the rating of excellence in the sovereign debt of the United States from AAA to AA +, citing the "political risks" weighing the possible reduction of deficits in the country.

For now, S & P do not think the United States gather this coveted status.The agency is the insoluble contradiction between the commitment of Democrats to the financing of social protection and the strength of the Republicans to reject any tax increases for the wealthy.

A rise in interest rates and debt more difficult to finance

July 29, when Congress tried to reach agreement on raising the debt ceiling of U.S. President Barack Obama had considered the following scenario: "If we lose the AAA, (...) it will cause an increase in interest rates, which would have the same effect as raising taxes for all Americans. "

Indeed, it is likely that the cost of credit to consumers in the United States increases, the interest rate charged by banks are directly related to income of U.S. Treasury bonds. The rating agencies will affect the interest rate that will apply to bonds issued by the federal government. The higher the rating, the higher the interest rate is low to the extent that this financial product is considered to be low risk.According to S & P, the loss of the AAA may result between 0.25 and 0.50% increase in the cost of borrowing in the United States.

Rising interest rates on treasury bills would increase the burden of debt or the amount of interest payable, included in the budget of the federal state. For a country as powerful as the United States, this would lead to the decline in investor confidence, and greater difficulty in raising funds, then the risk of default or bankruptcy. But the U.S. economy and the first masters of the international reserve currency, seem safe, although the debt financing looks more complicated ... or more costly."The U.S. Treasury will remain a benchmark [a reference market rates, Ed]," said Ciaran O'Hagan, strategist at Societe Generale.

Risk Reassessment

Beijing, the first creditor of the United States, has responded very quickly after the downgrade of U.S. debt. "The days of Uncle Sam, crippled with debt, could easily squander endless amounts of loans from abroad are numbered," said a statement from the official Xinhua News Agency on Saturday.China, which held in May 1160 a billion dollars of U.S. Treasury bonds, "now has all rights to require the United States to address their structural problems of debt."

Other creditors have responded more measured. Japan, the world's second holding U.S. debt, reaffirmed its "confidence" to the U.S. Treasury. "Their attractiveness as an investment will not change because of this action," said Saturday a government official told Dow Jones Newswires Japanese.

France was the first European country to emerge from the voice of Baroin.Paris "has full confidence in the soundness of the U.S. economy," assured the French Minister of Economy told AFP.

The time is not the moment to panic but to the revaluation of risk among investors and creditors. Still, the prospect of a rating of "AA +" by Standard & Poor's is negative, meaning that at a future rating, the U.S. could still go down a notch or "AA".