Locals try to make sense of economic turmoil
We're in a financial crisis - or are we?
After watching a congressional stalemate on debt-ceiling legislation, a downgrade of the coveted AAA rating to AA+ from Standard and Poor's and, finally, a dramatic plunge in the stock market over the past few days, many citizens are wondering what it all means for them.
The AAA rating, which the United States has had since Standard and Poor's first published it 70 years ago, is the country's long-term credit rating. The Securities and Exchange Commission recognizes three companies, Standard and Poor's, Moody's Investor Service and Fitch Ratings, which each assign a rating for the government's financial credibility.
'I think this is just a symptom of a fear we should all have, this downgrading, and that is the federal government is spending way beyond its means, and we should have a fear that unless the spending is brought under control, we could have massive problems,' said Carter Hardenbergh with Gresham's Blue Bear Lending Company. 'The reason for the downgrade is a reason to fear.'
As far as the fluctuating stock market, Hardenbergh said it is always unstable, and this most recent scare should not cause too much fear among investors.
So should the average resident be worried? Hardenbergh says to wait it out.
'Who knows?' he said. 'I think it's too soon to tell.'
Standard and Poor's not only lowered the rating to AA+, but also predicted that in the future the rating would continue to decline.
A lower rating indicates that the company has less confidence the government will be able to pay off its debt in a timely manner. It also means that the United States will have to pay slightly higher interest rates on its more than $14.4 trillion debt.
This could mean that consumers pay more on car, student and home loans as well. However, the Federal Reserve said Tuesday, Aug. 9, that key interest rates would remain 'exceptionally low' until 2013.
'Canada and the U.K. have been downgraded before and then gotten their AAA rating back,' said Christina Price of Edward Jones in Gresham. 'It hasn't always made rates go up.'
One positive is that although the rating from Standard and Poor's is now AA+, Moody's and Fitch still maintain the AAA rating, though Moody's has a negative outlook on that rating.
'The biggest thing is that people are … making sure they are … communicating about their investments so they don't panic and make rushed and uninformed decisions,' Price said.