Obama says U.S. still a AAA country
August 9th, 2011
Omaha, NE – As markets around the world swirl in reaction to America’s downgraded debt, and homeowners start sealing deals to lock in interest rates, KVNO News takes a look at what it all really means, and whether the decision from Standard and Poor will impact our local economy in Omaha.
“No matter what some agency may say, we’ve always been, and always will be a AAA country,” said President Barack Obama on Monday, reacting to Standard and Poor’s decision to downgrade U.S. debt from AAA to AA+. The President called the decision plain wrong. S&P blamed the growing national debt, and the political deadlock in Washington which led to an 11th hour deal to raise the debt ceiling. But Obama said the downgrade doesn’t accurately reflect the way the world, and one Omaha investor, sees the U.S. economy.
“The markets on the other hand continue to believe our credit status is AAA,” said President Obama. “In fact, Warren Buffett, who knows a thing or two about good investments, said if there were quadruple A rating, I’d give the United States that. I and most of the world’s investors agree.”
“If you can think about it in terms of a diving competition, two of the judges gave the U.S. a ten, and one gave it a nine,” said Doctor Kenneth Kriz, an Associate Professor in UNO’s school of Public Administration.
Kriz has studied the impact of downgraded credit in a number of states, and said as long as the other two major credit agencies keep their ratings, the effect shouldn’t be too drastic.
“So it’s not going to be huge at this point,” Kriz said. “It’s only when you start getting to the junk bond status, below a BBB and BBB-, when you start to get very high interest costs, like Greece is paying.”
Another agency, Moody’s is currently reviewing its rating of the federal debt, along with five states and 300 counties and cities, including Omaha. In fact, it’s already given Omaha a negative outlook, although it’s kept its rating the same. Kriz said bond markets have remained stable, and in fact interest rates have gone down since the news from S&P. The stock market, on the other hand, has swung wildly. That, Kriz said, has more to do with the psychological impact of the news.
“Psychological effects tend to affect markets in the short term,” said Kriz. “ In the longer term, fundamentals take over: profitability, the way the economy is going, whether we can restore the labor market. So over the longer run, you’ll tend to see those things come back to the forefront. If the U.S. can now go out and generate more jobs, get stronger GDP growth in the second half of the year, then this will all just be a historical footnote.”
Kriz added another factor that’s lessening the impact is that investors have nowhere else to put their money. U.S. treasury bonds are still the most attractive investment because the rest of the world’s economies are no better off.
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