https://www.fitchratings.com/research/sovereigns/fitch-downgrades-united-states-long-term-ratings-to-aa-from-aaa-outlook-stable-01-08-2023
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ELI5: This is a risk assessment. It means that investors find it riskier to lend to US government. (Through bonds, etc.)
*It is like you personally going to bank and ask for a loan of 10k, but the bank would only give you 8k because your credit score is a bit low.*
If you’re considered risky to lend money to, lenders will charge you higher interest rates to compensate for the risk.
This can lead to a kind of death spiral, because paying higher interest rates only increases the chances of you defaulting on a loan.
(AA+ isn’t *that* bad though, so we probably don’t all need to panic.)
Ratings like that are essentially assessments of how like the person or organization borrowing money is to pay back the loan.
The higher the risk of someone not paying back their loan the higher the interest they need to pay on their loan.
Normally the US government is as safe as it gets.
If you lend the US government you can be almost 100% sure they will pay you back.
For that reason interest rates are low.
By downgrading the US from AAA to AA+ the people are admitting that they are no longer quite as sure as they were in the past that the US government will pay back the loans.
It is still very, very sure, but ever so slightly less so.
In other countries things like political instability, like coup attempts or failures of government to service all their debts on time are seen that it has become riskier to lend them money.
In the US the recurrent political grandstanding that almost leads to the government not paying their debt and the events of January 6, made some people ever so slightly worried, that at some point in the future the US might miss a payment.
Such concerns lead to downgrading the US from AAA to AA+. It makes lending the US money less attractive and means the US might need to pay higher interest rates when they take out loans.
Since the US is mostly funded by taxes, this in the end means that fucking around with the debt ceiling and the orderly transfer of power, costs the US taxpayer money.
It’s about trust! The rating tells wealthy people how financially stable the country is as someone guaranteeing that money companies and investors borrow the country will 100% be payed back with interest. Meaning if its downgraded less wealthy people bring their money to the economy to invest in companies or borrow the state and instead take their money to another country with a better rating.
Less money investment means less companies being founded/run meaning less economic growth/activity or less money for the government.
First things first: AA+ is still incredibly high. For the 3 major ratings organizations (Fitch, S&P, Moody’s) the ratings go from AAA all the way down to D and “unrated”.
Now with that being said, AA+ is a measure of how reliable the US govt is with debt. Fitch released a summary assessment but the short and sweet is that there are some fears about our long term debt paying ability because of civil unrest, lowest taxes in 50 years, and the debt curve turning from linear to parabolic.
This isn’t the end of the world obviously. It’s just one sign that there are financial improvements we can make (my personal opinion is that we need to reteach people that taxes aren’t bad but that’s another discussion)
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