This morning, Standard and Poors (S&P)Â lowered its outlook on US long term debt. American treasury securities currently have a triple A rating, the highest possible.
The first thing that needs to be said about this is: Â it’s about time. America’s public debt to GDP ratio has been steadily rising since 2001, aÂ climb that has accelerated over the lastÂ few years.Â Credit rating agencies are notorious for being late to recognizeÂ a borrower’s perilousÂ condition. Â
Which brings us to the second-take away from this news. Once credit rating agencies get on to a country, they usually keep the pressure on. If that patterns repeats itself in the US case, we can expect further declines in theÂ US dollar. More importantly, and more ominously, weÂ will see the beginnings of a run on US treasury bonds.