Credit ratings may matter more for countries without sound currencies and trustworthy central banks. And credit quality is just one factor that investors consider when deciding how risky a bond is. They also reckon with liquidity, which is the ease of buying and selling a security. On this measure, the US Treasury is still No. If the government dishes out wisely to reduce scarring in the labor market, prevent social and political unrest, and to set up the economy for a faster rebound, then it could be money well spent, eventually enhancing its credit credentials.
By providing your email, you agree to the Quartz Privacy Policy. The agency also noted that the legislation delegates the lion's share of savings to a bipartisan committee, which must report back to Congress in November on where the axe should fall. The agency said it might lower the US long-term rating another notch to AA within the next two years if its deficit reduction measures were deemed inadequate. The credit agency also noted that the legislation contained only minor policy changes to Medicare, an entitlement programme dear to Democrats.
While the downgrade is a blow to U. Treasuries and other assets when markets reopen in Asia on Monday. In fact, Treasuries have rallied this week, driving the yield on the benchmark year note to 2. This reflects a belief among investors that U.
The downgrade could add up to 0. The Federal Reserve and other bank regulators moved on Friday to reassure global markets that the downgrade would not mean that additional capital would be needed by banks and other institutions holding Treasury securities. Small business loans will become costlier as private lenders are forced to increase their interest rates. Even Small Business Administration SBA -guaranteed loans, which are often lower cost and more accessible but still reflective of market conditions, will become more expensive.
Many small business owners use their personal credit cards to cover business expenses and manage debt. As with loan rates, small business credit card and personal credit card interest rates will also rise, squeezing the amount of capital small business owners have to work with and potentially driving them into more debt.
Credit markets will tighten up and U. Small businesses, especially unbanked ones and those in underserved communities, would be at a severe disadvantage when they have the least financial cushion. This would be a one-two punch for small business owners who would see their own retirement savings dissipate and then lose business from consumers who are now dealing with their lost nest egg.
In turn, larger public companies could lose value, thus making it harder to incorporate small businesses into their vendor supply chain.
The Treasury Department has been taking steps to meet its obligations, including payments to households such as Social Security. If the U. There are a number of downstream effects this would have on small businesses, including a loss of customers and a strain on business owners and employees now taking steps to make ends meet for themselves and their loved ones.
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