The threat that the U.S. might lose its coveted Aaa debt rating probably seems esoteric to most casual observers.
But the ripple effect from such a downgrade would be widespread and potentially severe, impacting everything from local municipalities and the neighborhood bank to home mortgages and student loans.
Sasse, once a top fiscal advisor to former Rhode Island Gov. Don Carcieri and an expert in state and municipal finance, said the first and most immediate impact of a downgrade would be a broad “dampening on the economy.”
“If you have less money coming in and more going out to service debt there’s less money to spend on public services,” he said. “You’ll feel it in a lack of new text books and less funding for new programs in school districts.”
Meanwhile, as the cost of borrowing for big debt issuers — governments, banks and corporations — rises everywhere as all manner of debt is downgraded, the costs will inevitably be passed on to consumers in the form of higher interest rates on everything from mortgages to car loans.