S&P gives the odds on a U.S. credit rating downgrade

07/21/2011 6:27 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

On my first visit to Bally’s in Las Vegas I was amazed to see that the casino had posted the odds of winning (or more precisely the odds against winning) above each bank of slot machines.

On July 21 Standard & Poor’s released a similarly precise statement of the odds of a downgrade to the U.S. AAA credit rating.

There’s a 50% chance that it will lower the U.S. AAA credit rating by one or more grades within three months, Standard & Poor’s said. Even if Congress raises the debt limit in time to avert a default, the company might lower the U.S. credit rating to AA+ with a negative outlook if Congress doesn’t also pass a credible solution to the budget deficit.

If the U.S. defaults on some obligation after August 2, even if its pays holders of Treasury bonds, short-term interest rates would climb by 0.5 percentage points, S&P projected. Long-term rates would climb by one full percentage point.

Sure can’t say we haven’t been warned.

 

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