To clarify, I mean why does the credit rating given to the US government by specific rating agencies matter? It seems like the reliability of the US government (or other first world nations) is common knowledge. Would a change in a credit rating actually cause the change in borrowing costs or the underlying reason a credit agency changed the rating which everyone already knows? For example, if the US government defaulted on its obligations but the credit agencies didn't change their rating it seems like borrowing costs would still go up regardless.
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- Reliability changes over time.
- People may have some very rough idea reliability of some debtor, but ratings are more granular. An average person probably won't spot small changes such as going from AAA to just A or BBB.
- If the rating would turn out to be false people would of course act on it. That does not mean the ratting does not matter. This is a separate issue of either rating agency abusing trust or being incompetent. Credible rating has an impact because it reduces information asymmetry between borrowers and creditors and information on creditworthiness does affect borrowing cost.