What does the credit rating downgrade mean for Main Street? - CBS News 8 - San Diego, CA News Station - KFMB Channel 8

What does the credit rating downgrade mean for Main Street?

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WASHINGTON (AP/News 8) — Credit rating agency Standard & Poor's on Friday downgraded the United States' credit rating first time in the history of the ratings.

The credit rating agency said that it is cutting the country's top AAA rating by one notch to AA-plus. The credit agency said that it is making the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country's debt situation.

A source familiar with the discussions said that the Obama administration feels the S&P's analysis contained "deep and fundamental flaws."

"The reason that we've lost it is because we haven't displayed the kind of responsibility that a triple-A country ought to have in dealing with its budget," SDSU finance professor Dr. Dan Seiver told News 8.

"We've been the safest place to invest for a really long time, and this is a reflection of the fact we're beginning to lose a little bit of that luster," Seiver added.

It remains unclear how this decision will impact interest rates, from home mortgages to credit cards to auto and student loans.

"Only time is going to tell how we're going to be affected and interest rates that affect the US government ultimately can ripple throughout the economy," David Walker, former U.S. Comptroller General, told CNN on Friday.

S&P said that in addition to the downgrade, it is issuing a negative outlook, meaning that there was a chance it will lower the rating further within the next two years. It said such a downgrade to AA would occur if the agency sees less reductions in spending than Congress and the administration have agreed to make, higher interest rates or new fiscal pressures during this period.

S&P first put the government on notice in April that a downgrade was possible unless Congress and the administration came up with a credible long-term deficit reduction plan and avoided a default on the country's debt.

After months of wrangling and negotiations with the administration, Congress passed this week a debt reduction package at the 11th-hour that averted a possible default.

In its statement, S&P said that it had changed its view "of the difficulties of bridging the gulf between the political parties" over a credible deficit reduction plan.

S&P said it was now "pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics anytime soon."

Copyright 2011 The Associated Press.

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