What does the downgrade mean to you?
- Mortgage rates would likely rise at least a half point. That’s a $19,000 hike on the average $172,000 home loan. Businesses would have to spend more money to finance expansions. Costs for borrowed money goes up, effectively raising the price of anything you’re not paying for with cash.
- The interest rates the government pays to finance the growing national debt will almost certainly rise as a result of the downgrade. That increases the amount of money Uncle Sam has to spend each year on “debt service.”
- Overall economy would be hit with 1 percent drop in GNP, translating into 640,000 lost jobs. This slowing increases the risks that the U.S. will have a second dip into recession. It also means less tax revenue, so the potential for additional debt increases.
- As the economy slows, expect the stock market to react. Investors buy shares to get a piece of growing profits. A slowing economy means profits grow less rapidly or go down. The relative value of a share of anything will go down. Some experts predict a downgrade could force stocks to sell-off by 6 percent to 10 percent in short order.