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(Reuters) - A downgrade to the U.S. sovereign credit rating could open up a new world of pain for the dollar.
Already reeling from low interest rates, slow economic growth, and foreign investors eager to diversify away from U.S. assets, the loss of AAA status could cement the view the dollar is no longer the safest harbor in a troubled world. The risk of a downgrade remains real even after Washington's $2.1 trillion budget savings deal, since it fell well short of the $4 trillion Standard & Poor's said would be enough to support the AAA rating with a stable outlook. That it took so much drama to produce such a limited round of cuts has disappointed investors who had grown weary of fiscal weakness during budget crises in the euro zone countries. "A debt ceiling raised plus downgrade equals weak dollar," said Jonathan Lewis, founding principal of Samson Capital Advisors in New York, which manages assets of $7 billion. "Not only would a double AA rating be a concern for international investors, but the fiscal imbalances would not be a good reason to buy the dollar." For years, the dollar has acted as the world's reserve currency, an international store of value for central banks. However, the fact the other safe-haven currencies are gaining at the expense of the dollar suggests investors' views may already be changing, perhaps in anticipation of a downgrade or at least a tough fight to hang on to AAA. Over the last month, the dollar plummeted 6 percent against the Swiss franc and about 4 percent against the yen. "Being the world's reserve currency seems incongruous with a double-A rating," said Barclays Capital in a research note. The only consolation, perhaps, is that the dollar has risen more than 1 percent over the past month against the euro, though only because the euro zone itself is under the gun over fiscal problems of Greece and Italy.
Originally posted by youdidntseeme
The AAA rating was only lost by the S&P.
Ratings agencies Moody's and Fitch both maintained the U.S.'s AAA credit rating following the debt deal.
Not by any means trying to downplay the severity of the S&P loss, but felt it was imprtant to the entire conversation to mention this fact.
honestly, it looked better in paper, seeing it play out is getting kind of dull and predictable
i will never understand TPTB and their roleplaying games.
everything is fine, nothing to see here, move along.
Originally posted by Praetorius
As far as gold - definitely a better bet than the dollar (and given time, pretty much *any* other currency...), but just with what little reading I've done, gold is likely too volatile and currently-inflated, and silver may be a safer bet.
Every man dies - not every man truly lives
You may be a king, or a little street-sweeper, but sooner or later, you dance with the Reaper
Till shade is gone, till water is gone, into the Shadow with teeth bared, screaming defiance with the last breath, to spit into Sightblinder's eye on the Last Day.
Originally posted by BlasteR
I had read earlier today that the downgrade was being considered but I didn't think they would actually do it.