Dow Down 635 Points Downgrade of U S Credit Rating AARP Bulletin
Dow Down 635 Points, Downgrade of U.S. Credit Rating - AARP Bulletin
The ratings agency Standard & Poor's stripped the United States of its AAA rating Friday, and on Monday did the same for mortgage giants Fannie Mae and Freddie Mac. For the rest of the day, all eyes were on New York, where the stock market entered a dizzying slide that recalled the drama of the 2008 market collapse. By the closing bell, the Dow Jones industrial average was down 635 points. Inflation ahead? Robert Wiedemer, coauthor of the newly updated Aftershock, an analysis of the consequences of recent Federal Reserve policy, says the credit rating downgrade makes investors and consumers less confident in the U.S. economy. And that, he predicts, will take a toll on U.S. investments. "The stock market will continue to get hammered," he says, "and this will likely force the Fed to print money for financial stability, but there's inflation pressure when that happens." Wiedemer predicts that inflation will rise by more than 5 percent in the next year or two if the Fed inflates the money supply. That would put pressure on an already fragile economy that has struggled with weak growth, flat consumer spending and stubbornly high Impact on fixed incomes For people on fixed incomes, higher prices for goods and services would damage their standard of living. Workers who plan to retire in three to five years and expect a pension benefit might also see a lowered payout if stocks continue their decline, since most plans are tied to the market, Wiedemer says. More bad news may be coming. S&P warned of future downgrades to the U.S. credit rating because of the continuing political and economic uncertainty. But two other credit rating agencies, Fitch and Moody's, reaffirmed their AAA ratings for the United States after the was reached. Fitch also said it would keep its rating under review until the end of August. Treasury Secretary Timothy Geithner, in a television interview Sunday, criticized the S&P for its "really terrible judgment" in downgrading the credit rating. Columnist Paul Krugman wrote on the New York Times website that "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?" Bond prices rise The downgrade doesn't appear to be spooking investors from buying U.S. government bonds, however. The prices of Treasury bonds edged up as investors seek safe havens from the volatility of the market. Michael Mussio, a certified financial planner at FBB Capital Partners in Bethesda, Md., says the downgrade will make it even more difficult for the economic recovery to gain momentum. "It's hard to get traction with 9 percent unemployment and 16 percent underemployment, with an economy that's based on the consumer," he says. Also of interest: Carole Fleck is a senior editor at the AARP Bulletin Cancel You are leaving AARP.org and going to the website of our trusted provider. The provider’s terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits. Your email address is now confirmed. You'll start receiving the latest news, benefits, events, and programs related to AARP's mission to empower people to choose how they live as they age. You can also by updating your account at anytime. You will be asked to register or log in. Cancel Offer Details Disclosures
A Wild Ride Down
Market plummets as credit downgrade spooks investors
The unprecedented downgrade of the United States' stellar credit rating sent financial markets into a 635-point dive Monday as experts debated the cut's likely long-term impact on the economy and consumers' pocketbooks. See also: Many analysts predicted higher borrowing costs for consumers on everything from homes and cars to furniture and appliances. Rates on certificates of deposits and other fixed-income might rise nominally — if they go up at all.Related
The ratings agency Standard & Poor's stripped the United States of its AAA rating Friday, and on Monday did the same for mortgage giants Fannie Mae and Freddie Mac. For the rest of the day, all eyes were on New York, where the stock market entered a dizzying slide that recalled the drama of the 2008 market collapse. By the closing bell, the Dow Jones industrial average was down 635 points. Inflation ahead? Robert Wiedemer, coauthor of the newly updated Aftershock, an analysis of the consequences of recent Federal Reserve policy, says the credit rating downgrade makes investors and consumers less confident in the U.S. economy. And that, he predicts, will take a toll on U.S. investments. "The stock market will continue to get hammered," he says, "and this will likely force the Fed to print money for financial stability, but there's inflation pressure when that happens." Wiedemer predicts that inflation will rise by more than 5 percent in the next year or two if the Fed inflates the money supply. That would put pressure on an already fragile economy that has struggled with weak growth, flat consumer spending and stubbornly high Impact on fixed incomes For people on fixed incomes, higher prices for goods and services would damage their standard of living. Workers who plan to retire in three to five years and expect a pension benefit might also see a lowered payout if stocks continue their decline, since most plans are tied to the market, Wiedemer says. More bad news may be coming. S&P warned of future downgrades to the U.S. credit rating because of the continuing political and economic uncertainty. But two other credit rating agencies, Fitch and Moody's, reaffirmed their AAA ratings for the United States after the was reached. Fitch also said it would keep its rating under review until the end of August. Treasury Secretary Timothy Geithner, in a television interview Sunday, criticized the S&P for its "really terrible judgment" in downgrading the credit rating. Columnist Paul Krugman wrote on the New York Times website that "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?" Bond prices rise The downgrade doesn't appear to be spooking investors from buying U.S. government bonds, however. The prices of Treasury bonds edged up as investors seek safe havens from the volatility of the market. Michael Mussio, a certified financial planner at FBB Capital Partners in Bethesda, Md., says the downgrade will make it even more difficult for the economic recovery to gain momentum. "It's hard to get traction with 9 percent unemployment and 16 percent underemployment, with an economy that's based on the consumer," he says. Also of interest: Carole Fleck is a senior editor at the AARP Bulletin Cancel You are leaving AARP.org and going to the website of our trusted provider. The provider’s terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits. Your email address is now confirmed. You'll start receiving the latest news, benefits, events, and programs related to AARP's mission to empower people to choose how they live as they age. You can also by updating your account at anytime. You will be asked to register or log in. Cancel Offer Details Disclosures