Thursday, August 11, 2011

US States Suffer From US Downgrade

After S&P's downgrade of America from AAA to AA+ it is only natural for the everyday person to wonder what practical effects will occur. It is easy to get wrapped up in the arcane intracies of high finance but a return to less nuanced and general coverage is always good.

Here is a good article that reviews what effects may occur in US states. Specifically,

States with high numbers of federal workers or contractors, large military presences or generous Medicaid programs for the needy are among the most vulnerable from Standard & Poor's recent downgrade of U.S. government debt.

The fears are that if the federal government could be downgraded then the states are not too far off. A downgrade for states would be disastrous for many as the immediate fallout would be higher borrowing costs. The review of states is also prescient as S&P's competitors, namely Moodys, are still angling for a way to distinguish themselves in the government debt markets but without the controversy followed by S&P after their federal credit rating.


The bottom line: States are nervously awaiting the fallout from S&P's federal downgrade. Lower budgets to meet stricter accounting measures could result in more laid off workers, fewer contracts for local businesses,lower tax revenues, and an increased number of people on the public rolls.
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