Do the credit rating downgrades for NSW and Victoria matter? Short answer: No

The credit ratings of Australia’s two largest states have been downgraded this week.

Standard & Poor’s downgraded the long-term ratings of New South Wales from AAA to AA-plus, and cut Victoria’s from AAA to AA.

It did so because NSW and Victoria will be taking on huge levels of debt in coming years to rebuild their economies and labour markets after the recession.

But should we care? Will there be any consequences from the credit downgrades?

A short history of ratings agencies

The global credit rating industry is dominated by three large agencies: Standard & Poor’s (S&P), Moody’s and Fitch Ratings.

Their dominance traces back to 1975.

That year, the US Securities and Exchange Commission (SEC) awarded them the status of “Nationally Recognised…