# US loses AAA rating: what happens? **URL:** \ **Category:** Great Debates\ **Created:** [July 28, 2011, 6:39pm UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652 "2011-07-28T18:39:13Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Bryan\_Ekers](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bryan_ekers/32/183_2.png) [@Bryan\_Ekers](https://boards.straightdope.com/u/Bryan_Ekers)\ **Post date:** [July 29, 2011, 12:28am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/21 "2011-07-29T00:28:35Z")
Raises an interesting follow-up question - what happens if _nothing_ happens? What’s the next game of brinkmanship the House Republicans will glom onto? ---
**Author:** ![coremelt](https://avatars.discourse-cdn.com/v4/letter/c/4491bb/32.png) [@coremelt](https://boards.straightdope.com/u/coremelt)\ **Post date:** [July 29, 2011, 1:02am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/22 "2011-07-29T01:02:59Z")
> [@Sam\_Stone](#): > > The correct answer is: No one really knows. > > The U.S. is in a unique position. Why? Here is a list of countries with AAA ratings: –Australia –Austria –Canada –Denmark –Finland –France –Germany –Hong Kong –Netherlands –Norway –Singapore –Sweden –Switzerland –United Kingdom Why can’t institutions who have to have AAA investments just invest in government bonds from those countries? If their rules specify US only then they call an emergency board meeting and change the rules. The US is not “too big to fail”, and at the end of the day, the huge hit to your dollar value will eventually help you, by making your exports more competitive. ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [July 29, 2011, 1:12am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/23 "2011-07-29T01:12:42Z")
> [@Bryan\_Ekers](#): > > - what happens if _nothing_ happens?.. The Eagles will reunite in a warm spirit of brotherhood and mutual respect. Comcast wil reduce cable rates to one tenth of their current rates, and ultra-high-speed internet connections will be free. Religious right trogs will wash the feet of gay lepers in a grand gesture of penance. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [July 29, 2011, 1:17am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/24 "2011-07-29T01:17:31Z")
The very same rating agencies that would give AAA to anything the banks threw at them are suddenly to be trusted . There were emails in the agencies saying they would AA rate a cow if the banks tossed it to them. They were making millions and did not do their jobs properly. They were a rating agency and a watchdog agency. They failed miserably in both cases. ---
**Author:** ![lisiate](https://avatars.discourse-cdn.com/v4/letter/l/f05b48/32.png) [@lisiate](https://boards.straightdope.com/u/lisiate)\ **Post date:** [July 29, 2011, 1:27am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/25 "2011-07-29T01:27:55Z")
We had a similar discussion about sovereign debt ratings in [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=616033&highlight=ireland)about Ireland’s recent downgrade by Moody’s. At the moment any US downgrade will be to a lower investment grade, not down to junk like happened in Ireland, so the effects won’t be as severe. As to why the US is unique, [here’s a nifty table](http://blogs.wsj.com/economics/2011/07/27/downplaying-a-u-s-ratings-downgrade/tab/interactive/)and chart from the Wall Street Journal blog where you can compare debt levels. The US has the highest level of any of the AAA rated countries (by not by much) and also the worst projections. ---
**Author:** ![coremelt](https://avatars.discourse-cdn.com/v4/letter/c/4491bb/32.png) [@coremelt](https://boards.straightdope.com/u/coremelt)\ **Post date:** [July 29, 2011, 1:48am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/26 "2011-07-29T01:48:51Z")
> [@lisiate](#): > > As to why the US is unique, . What that table says to me is “unique” as in should realistically have been downgraded months ago and would have been if the name of your country wasn’t “USA”. And the downgrade might happen even if you don’t default, S&P has said that if the deal is not realistic or will put you against the debt ceiling again in only a few months time they will downgrade the US anyway. ---
**Author:** ![lisiate](https://avatars.discourse-cdn.com/v4/letter/l/f05b48/32.png) [@lisiate](https://boards.straightdope.com/u/lisiate)\ **Post date:** [July 29, 2011, 1:58am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/27 "2011-07-29T01:58:29Z")
That’s what I was implying - the US situation is unique because any other country with its figures would have been downgraded long ago. Oh, and I’m a non-US doper. ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [July 29, 2011, 2:00am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/28 "2011-07-29T02:00:46Z")
> [@lisiate](#): > > …Oh, and I’m a non-US doper. Well, don’t give up hope! Dare to dream, all of this could be yours! ---
**Author:** ![rocking\_chair](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/rocking_chair/32/2918_2.png) [@rocking\_chair](https://boards.straightdope.com/u/rocking_chair)\ **Post date:** [July 29, 2011, 2:01am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/29 "2011-07-29T02:01:00Z")
the really simple version: say aaa rated countries pay 1.25 % interest on loans. then aa rated countries pay 2.5% interest on loans. therefore getting downgraded puts you further into the hole. 'cause if you are struggling to pay 1.25, you are gonna really hurt to pay 2.5%. that seems to be the point that the very far right is missing. by not raising the debt ceiling, and having it raised for good amount of time, the debt gets worse and worse. ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [July 29, 2011, 2:15am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/30 "2011-07-29T02:15:21Z")
Worse, its debt money which is dead money. It can’t build a road, hire a fireman, send a kid to college. And it is one hundred percent unnecessary. We simply pissing that away. ---
**Author:** ![rocking\_chair](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/rocking_chair/32/2918_2.png) [@rocking\_chair](https://boards.straightdope.com/u/rocking_chair)\ **Post date:** [July 29, 2011, 4:37am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/31 "2011-07-29T04:37:40Z")
100 billion is quite a bit to just toss in the debt hole. just a wee bit of that and camden nj wouldn’t have to depend on phila. to help out in firefighting. ---
**Author:** ![Der\_Trihs](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/der_trihs/32/233_2.png) [@Der\_Trihs](https://boards.straightdope.com/u/Der_Trihs)\ **Post date:** [July 29, 2011, 4:43am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/32 "2011-07-29T04:43:59Z")
> [@rocking\_chair](#): > > that seems to be the point that the very far right is missing. by not raising the debt ceiling, and having it raised for good amount of time, the debt gets worse and worse. Oh, I’m sure they know that and are counting on it. They _want_ the debt to get bigger and bigger. ---
**Author:** ![Cyberhwk](https://avatars.discourse-cdn.com/v4/letter/c/7993a0/32.png) [@Cyberhwk](https://boards.straightdope.com/u/Cyberhwk)\ **Post date:** [July 29, 2011, 6:20am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/33 "2011-07-29T06:20:20Z")
> [@Bryan\_Ekers](#): > > Raises an interesting follow-up question - what happens if _nothing_ happens? What’s the next game of brinkmanship the House Republicans will glom onto? Well if Boehner gets his way we get to do all this again in early 2012. ---
**Author:** ![coremelt](https://avatars.discourse-cdn.com/v4/letter/c/4491bb/32.png) [@coremelt](https://boards.straightdope.com/u/coremelt)\ **Post date:** [July 29, 2011, 7:00am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/34 "2011-07-29T07:00:09Z")
> [@Cyberhwk](#): > > Well if Boehner gets his way we get to do all this again in early 2012. Yes but in case of any such short term solution the damage is already done, S&P has stated they will downgrade the US AAA rating if that’s the outcome, because of the extended state of uncertainty that that would create. ---
**Author:** ![Capt.Ridley\_s\_Shooting\_Party](https://avatars.discourse-cdn.com/v4/letter/c/cc9497/32.png) [@Capt.Ridley\_s\_Shooting\_Party](https://boards.straightdope.com/u/Capt.Ridley_s_Shooting_Party)\ **Post date:** [July 29, 2011, 8:31am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/35 "2011-07-29T08:31:19Z")
OK, I’m still not seeing any real answer to what happens when all the hedge funds and pensions suddenly dump their US bonds. Is this really that unrealistic? As far as I know, it is illegal for many of them to hold any non-AAA bonds anyway, so they don’t exactly have much room for manoeuvre or to weasel around it by making the US a special case. And, as **coremelt** stated, there’s plenty of other countries with excellent AAA sovereign ratings, so _why would they_ anyway? Suppose the asset dump does happen. What is the effect on global markets? On the US? ---
**Author:** ![BDoors](https://avatars.discourse-cdn.com/v4/letter/b/e95f7d/32.png) [@BDoors](https://boards.straightdope.com/u/BDoors)\ **Post date:** [July 29, 2011, 9:29am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/36 "2011-07-29T09:29:00Z")
> [@Capt.Ridley\_s\_Shooting\_Party](#): > > OK, I’m still not seeing any real answer to what happens when all the hedge funds and pensions suddenly dump their US bonds. Is this really that unrealistic? As far as I know, it is illegal for many of them to hold any non-AAA bonds anyway, so they don’t exactly have much room for manoeuvre or to weasel around it by making the US a special case. And, as **coremelt** stated, there’s plenty of other countries with excellent AAA sovereign ratings, so _why would they_ anyway? I think what people like \*\*Rune \*\*and commentators elsewhere are saying is that the AAA bonds available elsewhere are not enough to make up for the shortfall if these institutions avoid US debt. Some people are talking about using high-grade corporate bonds from rock-solid blue chip corporations, instead of government bonds. And yes, others are saying that institutions would likely just change or fudge their rules a bit and continue to buy US bonds. ---
**Author:** ![coremelt](https://avatars.discourse-cdn.com/v4/letter/c/4491bb/32.png) [@coremelt](https://boards.straightdope.com/u/coremelt)\ **Post date:** [July 29, 2011, 11:27am UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/37 "2011-07-29T11:27:33Z")
> [@Capt.Ridley\_s\_Shooting\_Party](#): > > Suppose the asset dump does happen. What is the effect on global markets? On the US? The answer is no one really knows, but in the short term it’s going to hurt big time. One of my friends is a russian girl who told me about the day in 1998 when in one day every single price in the shops went out quadruple overnight because the ruble lost so much value. Yes thats possible. Is is the end of the world for every other country? No it’s not, you’re just not as important as you think you are. ---
**Author:** ![Latro](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@Latro](https://boards.straightdope.com/u/Latro)\ **Post date:** [July 29, 2011, 12:05pm UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/38 "2011-07-29T12:05:18Z")
> [@coremelt](#): > > Is is the end of the world for every other country? No it’s not, you’re just not as important as you think you are. Weelll, it’s not called the dollar hegemony for nothing. The US dollar is/was held more important. It is/was the standard against which other valuta were held and oilprices are established in dollars. This is THE reason the US could rake up such enormous debts. No one wanted it to devalue. Plus the US guarded its status well. (One reason stated for the Iraq wars, was that Saddam wanted to start trading in Euro’s instead of dollars). But all in all the value of the dollar was a big bubble. It looks like the bubble is about to burst. ---
**Author:** ![humanafterall](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/humanafterall/32/19654_2.png) [@humanafterall](https://boards.straightdope.com/u/humanafterall)\ **Post date:** [July 29, 2011, 12:12pm UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/39 "2011-07-29T12:12:59Z")
Well, my first reaction would be to get in my escape pod and set a course for Europe, possibly Spain, then settle in with the indigenous population, where I would then find a wife, have children, and live a life in obscurity, and wash my hands of my American heritage, then I remembered that I don’t have an escape pod. ---
**Author:** ![Bryan\_Ekers](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bryan_ekers/32/183_2.png) [@Bryan\_Ekers](https://boards.straightdope.com/u/Bryan_Ekers)\ **Post date:** [July 29, 2011, 12:32pm UTC](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652/40 "2011-07-29T12:32:58Z")
Sounds like we Canadians better secure our border, lest a bunch of unwashed economic-refugee riff-raff begin heading north. [Previous page](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652.md?page=1) [Next page](https://boards.straightdope.com/t/us-loses-aaa-rating-what-happens/590652.md?page=3)