What You Need to Know About the "Watch List" and a Potential Downgrade

As you may have read, Standard & Poor’s announced that there is now a 50-50 chance that they will downgrade the U.S. Treasury. Attached is a paper we prepared that explains exactly what it means to be on the S&P watch list, what a downgrade would mean for the U.S. economy, and what needs to be done to preserve America’s AAA credit rating.

Here are four quick points which we delve into in the body of this paper.

  1. Being placed on the credit watch list sets off a series of specified actions and procedures that if not followed could lead to a downgrade within 90 days.
  2. Simply extending the debt ceiling, while necessary, is not sufficient to stave off a downgrade.
  3. Once a country is downgraded, it is a long road back to an upgrade – and the consequences for the U.S. economy may be dire.
  4. S&P estimates that a downgrade would increase the interest rates on U.S. treasuries by 50-basis points.

Our previous paper, Dominoes of Default shows exactly what a 50-basis point increase would mean for our economy. For example, it would likely cost 640,000 jobs.

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To read this Memo, open the attached PDF