Chamath Palihapitiya Recalls What Happened When US Last Got A Credit Downgrade

President Joe Biden and House Republicans reached an agreement over the weekend to suspend the debt ceiling limit for two years. The safe passage of the bill through Congress is clouded with uncertainty as conservative GOP members have expressed their unhappiness over it.

Last week, rating agency Moody’s warned of putting the U.S.’s “AAA” credit rating on “negative” watch in the eventuality of the U.S. defaulting without a debt deal. 

Chamath Palihapitiya, a Sri Lankan-born Canadian-American venture capitalist, weighed on the threat of a rating downgrade and its potential implication Friday on an episode of the “AII-In” podcast. According to Palihapitiya, a credit rating downgrade may not mean much for the economy. He noted that Standard & Poor downgraded the credit rating of the U.S. from “AAA” to “AA+” in August 2011.

At the time when the United States downgraded the credit rating, it was during the tenure of former President Barack Obama years at the time Biden was president.

“You know what happened? Absolutely f***king nothing,” he said.

These downgrades don’t mean much, Palihapitiya said, adding that these third-party credit agencies are not particularly that accurate and sophisticated.

“They don’t know anything that you don’t know,” he said. According to Palihapitiya, these companies are in the business of putting a letter on a document and then selling access to that document.

“So, if you’re going to trust these guys to know what they’re saying either right or wrong independent of what side, you are outsourcing your decision-making to the wrong body,” Palihapitiya said.

“I would tell you to ignore it and come to your own conclusion,” he added.

Palihapitiya also shrugged off the debt impasse as something that happens every couple of years.

Wednesday could be D-day for the House to discuss the bill, given the legal text has been prepared and made public.

Produced in association with Benzinga

Edited by Sterling Creighton Beard and Alberto Arellano