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Markets Fall After Fitch Downgrades U.S. Debt

Source: Spencer Platt / Getty

INDIANAPOLIS — Last week Fitch downgraded the United States’ credit rating from AAA, the highest possible rating, to AA+. Even though the rating is still high, the downgrade has sent a few ripples through the U.S. economy.

Dr. Matt Will, an economist at the University of Indianapolis, said you can expect a few more ripples as time goes on because of the message that downgrade sends to the rest of the world.

“Every investor in the world thinks this is the one place, the safest place, to invest their money because it’s ‘guaranteed’ to be paid back,” Will said on Indy Politics. “Well, the Fitch rating says ‘no, it’s not guaranteed to be paid back’.”

Fitch is a credit agency that gauges the ability of countries and large companies to be able to repay their debt. Fitch cites two big reasons why the downgrade happened in a full report, says Will.

“There is major dysfunction in Washington. That’s one,” Will said. “And two, they are spending way too much money. Those are the two big things. The spending too much money, that’s the real consequence.”

Will said because of the downgrade those who hold the U.S.’s debt will likely charge more in interest as the country pays that debt back. That could have more of those aforementioned ripple effects on you, such as higher taxes.

In its report, Fitch said that the best way for the U.S. to get its credit rating back to where it was is by reducing spending.

Will also added some incite on just who holds the U.S’s debt. He said the American consumer actually holds a majority of it. Around $7 trillion of the country’s $33 trillion in debt is held by foreign governments.