Threat of $100 Billion Hit if U.S. Top Rating Lost
June 27th, 2011I definitely wouldn’t assume that the impact of a credit rating cut would be limited to $100 billion. I doubt there is any way to know what the impact will be because so many derivatives have been struck off the underlying debt. In other words, this $100 billion number may be just the tip of the iceberg.
Via: Financial Times:
Investors in the US government bond market could face losses of up to $100bn if the largest economy loses its triple A rating, according to a research arm of McGraw-Hill, the parent of Standard & Poor’s.
A ratings downgrade that results in higher bond yields and lower prices could also mean the US Treasury paying $2.3bn-$3.75bn a year more in interest on financing a $1,000bn annual budget deficit.
“If Standard & Poor’s or any of the other major rating agencies downgrade the US, Treasuries would likely drop in value, possibly by as much as $100bn,” said analysts at S&P Valuation and Risk Strategies, a research team separate from the agency.
