America's Credit Downgraded: What You Need to Know

Rumors were swirling all day, and then it finally hit: Standard & Poor's downgraded the nation's credit rating this evening, the first time the U.S. Treasury has lost its pristine AAA rating since ratings began nearly a century ago.

S&P now rates the United States at AA+. The rating agency didn't beat around the bush when describing why it made the cuts:

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

No big surprises here. The rating agencies have had the nation's credit rating on notice for months, warning Washington that without getting its fiscal house in order, and keeping political cage matches away from serious economic issues, a downgrade loomed. The debt-ceiling deal struck earlier this week failed on the former, and made the latter go prime-time. So here we are.

What's it mean for markets? No one can say for sure. Some sort of visceral fear-laden response on Monday seems likely. If there is a big selloff, it's not just about investors panicking. It's about investors expecting that other investors will be panicking and trying to preempt them. Do yourself a favor and don't pay much attention to any dramatic market reactions next week. The traders and computer algorithms that influence daily market moves almost certainly have different goals from the average Motley Fool investor.

Longer-term, the downgrade could mean a jump in interest rates. That could slow economic growth and literally add trillions of dollars to the national debt in higher borrowing costs.

This, though, is debatable. On average, AA-rated countries pay about 0.7% more to borrow than AAA-rated ones. But there are exceptions. Japan's interest rates actually fell after it was downgraded in 2001. The United States issues (or used to issue) about 60% of the world's AAA-rated debt. Investors who want high-quality debt in large amounts don't have many choices besides Treasuries. In that case, the downgrade might have little impact. It might just mean that AA becomes the new AAA. This is the argument that those who think the downgrade will be a nonissue use, and they very well may be right.

How did we get here? Federal debt exploded over the past few years as the recession smashed the economy:

Sources: Federal Reserve, author's calculations.

Interestingly, though, interest rates have plunged so deeply that even as debt accumulated, total interest paid on that debt -- what I've argued is the most important figure when looking at the national debt -- has dropped to nearly a historic low:

Source: Office of Management and Budget.

And as S&P hints at, the rise in debt in recent years has been caused almost as much by a drop in tax revenue as it has a jump in spending:

Source: Office of Management and Budget.

Silver lining: Let's hope this serves as a wake-up call.

A few good reads on this topic:

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter, where he goes by @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On August 05, 2011, at 9:59 PM, TMFJMo wrote:

    A wake-up call indeed. I would say that this is certainly a well-deserved downgrade. DC (I am talking Republicans and Democrats alike...they're all complicit in my view) has proven beyond a reasonable doubt that their "political brinksmanship" has not been at all about what is best for the American people. Maybe this will help turn the tide and show that there truly must be a middle of the road solution that brings together the best of both sides.

    Nice job Morgan.

  • Report this Comment On August 05, 2011, at 10:08 PM, masterN17 wrote:

    Remember when everyone was talking about the Treasury bubble?

    Pop!

    - N

  • Report this Comment On August 05, 2011, at 10:19 PM, TMFBlacknGold wrote:

    I absolutely agree with TMFJMo. This is well-deserved and hopefully it serves as a wake-up call. Both political parties are to blame (Congress has a 14% approval rating). The pledge against raising/reforming taxes is absolutely ridiculous. Likewise, our entitlement programs need some major changes. Failing to do so will be much more painful in the long-run.

    How did we get here? Federal debt exploded over the past few years because the recession smashed the economy:

    Can you elaborate on this? While it definately contributed, isn't the obvious reason for the Federal debt the two wars and numerous cuts in taxes under the last administration? I'm not trying to be political, but we can all agree that for an administration to be handed a surplus and turn it several trillion red data points is absolutely irresponsible.

  • Report this Comment On August 05, 2011, at 10:21 PM, TMFHousel wrote:

    BlacknGold,

    That line was worded a little differently before editing, but in general we're in agreement: today's debt was driven by a decade of poor policy, but really went into overdrive as the recession hit in 2008.

  • Report this Comment On August 05, 2011, at 10:24 PM, mikecart1 wrote:

    What you really need to know: (1) the DOW will drop at least 1000 points next week and possibly on Monday alone (2) look into high yielding dividend stocks like MO and JNJ (3) pray that Obama has a plan (4) pray that Moody's doesn't downgrade next (5) pray hard that S&P doesn't downgrade the US again (6) money isn't real (7) life is too short (8) don't panic (9) don't sell your stocks (10) learn to eat noodles, eggs, chicken, water

    Cheers! Good luck to all!

  • Report this Comment On August 05, 2011, at 10:29 PM, TMFJMo wrote:

    "two wars and numerous cuts in taxes under the last administration?"

    All politics aside, you cannot fight wars and cut taxes. Just doesn't work...definitely had a part. Just my two cents.

    J

  • Report this Comment On August 05, 2011, at 10:29 PM, mm5525 wrote:

    Mike, I know you're more of a MO man than me, but wouldn't you think the USD will tank with this downgrade, which will help PM more?

  • Report this Comment On August 05, 2011, at 10:32 PM, TMFBlacknGold wrote:

    I read that the other rating agencies have no intention of making any moves, which helps blunt the effects of the S&P downgrade. As we all know, fear doesn't care about that.

    Here's a lil' nugget to help you feel better: China's rating agency, Dagong Global, has the US rated at A. So does AA make you a rockstar? =)

  • Report this Comment On August 05, 2011, at 10:49 PM, wildduffy wrote:

    It appears that the republicans plan to make Obama a one term president has no bounds, evenif it drives the country to ruin.

  • Report this Comment On August 05, 2011, at 10:54 PM, taralbharatia wrote:

    May be come Monday it would adversely affect REPO market all over the world where Trillions of dollars worth of Treasuries are given as collateral against short term borrowing by banks and money markets.

  • Report this Comment On August 05, 2011, at 11:26 PM, wolfman225 wrote:

    <i>It appears that the republicans plan to make Obama a one term president has no bounds, evenif it drives the country to ruin.</i>

    Do you really want to make this political point?

    Current GDP is LESS than GDP in 2007. Hmmmmm.......let me see........which party took over Congress (and the pocket book) in 2007?

    Don't lower yourself to being such a partisan hack. There is more than enough blame for both parties, as well as a healthy serving for greedy, short-sighted voters. If we're going to right this "ship of state" we all need to have a national conversation.

    What type of country do we want to have? Capitalist, with REASONABLE regulation? Or Euro-style Socialism?

    Do we want an all-powerful Federal government handing down decrees from on high? Or do we want a Constitutionally limited Federal government, with most of the regulatory rights returned to the States (10th Amendment)?

    Do we want Cradle-to-Grave protection from misfortune? Or do we want to take the risk of possible failure, in return for the chance to fulfill our potential and achieve our dreams?

    I know which I want. With nearly 50% (more, if you count the illegals) not paying into the Federal till (please, don't waste my time with payroll taxes, sales taxes, etc.), yet still demanding that politicians cater to their demands, and with our being stuck with politicians (as opposed to statesmen) more than willing to pander, I fear the direction the discussion may take.

  • Report this Comment On August 05, 2011, at 11:39 PM, mhonarvar wrote:

    "Do we want Cradle-to-Grave protection from misfortune?"

    No way!...I say we just worry about protecting those that can work (for as little as possible) and so my stocks can afford to increase dividends every year...who cares about kids and seniors....they can take care of themselves!

    Besides...without all these poorly educated kids and seniors without savings....who will work for minimum wage?

    really?

  • Report this Comment On August 05, 2011, at 11:49 PM, stockpower wrote:

    Why do we have cost of living increases built in to entitlement programs in a deflationary environment? Why can't we just cut spending across the board, say 5% and suck it up. Federal spending is a run away train, derailing our country's entire future for generations to come.

    By the way, in my personal opinion, we knew S&P downgrade was looming, so maybe a knee jerk reaction early in the week....but stabilazation, somewhat lower, yes, later in the week. Let's see, hold on tight!

  • Report this Comment On August 05, 2011, at 11:52 PM, TMFHousel wrote:

    <<Why do we have cost of living increases built in to entitlement programs in a deflationary environment?>>

    Social Security just went two years w/ out a COLA adjustment.

    http://www.msnbc.msn.com/id/39603054/ns/business-personal_fi...

  • Report this Comment On August 05, 2011, at 11:57 PM, wolfman225 wrote:

    "Do we want Cradle-to-Grave protection from misfortune?"

    No way!...I say we just worry about protecting those that can work (for as little as possible) and so my stocks can afford to increase dividends every year...who cares about kids and seniors....they can take care of themselves!

    Besides...without all these poorly educated kids and seniors without savings....who will work for minimum wage?

    really?

    -------------------------------------------

    Well, I guess we know which you want. Ordinarily, I would wish that you get what you think you deserve. Unfortunately, if you do, so do the rest of us.

  • Report this Comment On August 06, 2011, at 1:04 AM, RenegadeIAm wrote:

    This is the result of DECADES of mismanagement and overspending.

    The Social Security generational time bomb handed to us by FDR is finally exploding.

    Medicare and Medicaid costs are skyrocketing due to the same generational time bomb.

    The skyrocketing costs of the Great Society handed to us by LBJ have been grinding us down.

    Congressional Budget Act of 1974 and baseline budgeting means that spending the same money this year as last year has to be scored by the CBO as a ten TRILLION dollar CUT!

    Government expenditures have DOUBLED in the last decade under Bush & Obama. Are we helping twice as many people? Or is maybe the money being MISSPENT?

    Flawed reasoning like mhonarvar leads to the assumption that if the government isn't feeding your kid, your kid won't get fed. If the government isn't taking care of your parents, your parents don't get taken care of.

    Do we really believe that if taxes aren't being spent on feeding people, that they starve; that if taxes aren't being spent on job training that people will have no skills; that if taxes aren't being spent on healthcare that people will get none?

    Have we really gotten to the point where the solution to any/all problems is for the government to take care of it for us?

    I hope not. Next thing up will be investors claiming to have a "right" to their principal in case of a stock market crash.

    Please.

  • Report this Comment On August 06, 2011, at 1:15 AM, GETRICHSLOW2 wrote:

    Than you Mr Obama! Bargains galore!! I can't do my due diligence fast enough. It's going to be a long weekend.

    When a country has to borrow money from one credit source just to pay the interest on another, while at the same time continuing to spend on unsustainable and unconstitutional programs, it is just a matter of time before collapse.

    This downgrade was long overdue and I am very glad to see it. This nation must learn to live within its' means. Nearly one third of a person income in taxes just at the federal level is plenty. If they cannot function on that, they are doing something wrong.

    The American economy fuctioned just fine through the 80's and 90's with much higher interest rates than we have now. A small increase due to the downgrade will not kill the economy.

  • Report this Comment On August 06, 2011, at 1:31 AM, wolfman225 wrote:

    <<When a country has to borrow money from one credit source just to pay the interest on another, while at the same time continuing to spend on unsustainable and unconstitutional programs, it is just a matter of time before collapse.>>

    Kinda like using your MC to make the (minimum) payments on your VISA while you run up the balance on AMEX, eh?

    @RenegadeIAm:

    +1rec

    One other ridiculous, scary idea Mr. Obama has brought up that no one has commented on:

    He has actually said that he wants to extend the payroll tax cuts! This is insanely stupid. If he really wants to give the "working class" a tax break, REDUCE THE MARGINAL INCOME TAX RATES! Idiot. He just doesn't get it. SS is already severely underfunded and headed for insolvency by 2037 (maybe earlier) and his solution is to further underfund it??? All he is doing is hastening the inevitable.

  • Report this Comment On August 06, 2011, at 1:35 AM, wolfman225 wrote:

    <<I hope not. Next thing up will be investors claiming to have a "right" to their principal in case of a stock market crash.>>

    SHHHH! <jinx>

    They've probably already thought of it, but if not, don't give 'em any ideas.

  • Report this Comment On August 06, 2011, at 2:14 AM, mhonarvar wrote:

    flawed reasoning....

    with 10% unemployment....that's a lot of families without an income (to pay for food). I'm sure these people get tons of job offers but are too "lazy" to work...right?

    with stocks crashing (because of the crisis caused by "flawed reasoning" of Economists not able to see/predict what was going on )...a whole bunch of seniors did have to go back to work or get government help....I'm sure they all got their old jobs back ;)

    cutting their services isn't the answer...every $ they get...they have to spend on rent, food etc (going back into economy)...tax cuts to the rich or corporations sits in a bank collecting (sky high interest??? above average stock returns????)

    the 20% of the budget going to "national defense" goes to making super-missiles and predator drones to blow up huts in Afghanistan and stationing troops in every corner of the globe (like 30,000 in Japan and 50,000 in Germany).....very good for the economy I say!

  • Report this Comment On August 06, 2011, at 4:01 AM, andresso wrote:

    I would recommend to read Aswath Damodaran's blogpost from last week where he explains in detail what would happen after a US ratings downgrade. Excellent stuff.

    http://aswathdamodaran.blogspot.com/2011/07/sovereign-rating...

  • Report this Comment On August 06, 2011, at 6:08 AM, sgt1917 wrote:

    Seems clear to me from the S&P statement that the Tea Party groups were on the mark. The Congress did not go anywhere far enough to cut spending and reduce entitlements.

    As for the tax revenue, well, the current administration has been an obvious failure in getting this country back on track since our problems began with the housing bubble (thanks to Fanny and Freddy). This, along with excessive entitlements has provided us with far fewer taxPAYERS than we should have.

    As we all know (or should know), repeal of the Bush tax cuts would have such a minor effect on the overall issue that it would be meaningless.

    First and foremost - we need to bring back "Made in America" and get Americans back to work!!

  • Report this Comment On August 06, 2011, at 7:10 AM, JeanDavid wrote:

    The one service I would like to have cut is the imperialistic budget that wages wars of aggression throughout the world. I think the total military budget, including most of the 16 or so secret police agencies, most of the department of energy, and such, should be cut to the point where there is just enough money to operate an adequate coast guard. This should be about 5% to 10% of the current budget. We have no legal or moral right to be the major terrorist nation in the world, and we cannot afford it anyway. Time to give up this prohibitive hobby.

    The second budget balancing tool would be to tax those companies that got about !13 trillion in bailouts.

    But neither of these will ever happen because the majority of our politicians are corrupt plutocratic kleptocrats who do not have the interest of the country in mind. And since they are all sold out and unresponsive to the citizens, but only to the money from the large corporate sponsors, it will never change. It is all over for the USA. All we can do is wait for the eventual collapse. This drop in credit rating is just one of the stepping stones to Hell.

  • Report this Comment On August 06, 2011, at 7:13 AM, Bert31 wrote:

    Is it possible interest rates will rise for the American consumer as well? If so maybe that will kikc start housing sales, as those who have been holding out for the best possible deal may see that the low rates may end soon, and there is a rush to buy before rates go up too much. At least that is what I hope to get this economy growing at a faster rate.

  • Report this Comment On August 06, 2011, at 8:17 AM, Jbay76 wrote:

    For all those ripping on SS, remember that it ran a surplus, much like the Post Office, and the Federal government in all it wisdom put SS in a general fund category and used the money for other things, like war, with the supposed intention of paying SS back. I guess they forgot..woops. WIthout Fed involvement, SS would have done fine

  • Report this Comment On August 06, 2011, at 8:36 AM, ChicagoMary wrote:

    Good morning Fellow Fools,

    Paul Krugman is absolutely correct when he said in his blog today:

    "S&P is just making stuff up".

    Read his post here

    http://krugman.blogs.nytimes.com/2011/08/05/sp-and-the-usa/

  • Report this Comment On August 06, 2011, at 8:47 AM, Supercharged362 wrote:

    As much as I would like to see buyers rush in and start buying homes, I haven't seen that happen in the last 4 years since the downturn in the real estate markets. Lower rates have proven time and again that consumers are not motivated by lower payments in order to buy a home. Lower rates will never trump the number one reason most buyers buy - lack of fear or confidence. The most common fear we hear from buyers and move up sellers - fear of job loss. Not ironic considering the #1 reason for foreclosures right now is due to job loss - not crappy loans - although the second wave them will be coming as well. Those 5-7 year arms from 2007-2008 will be resetting between 2012-2015 - just as the interest rate environment inflates...

    Jobs, jobs, and more jobs - that's what will move us forward - there are only 2 problems with this - our current leader seems hell bent on NOT creating them and for as many jobs as we have lost already it will take a very long time to replace them at an anemic monthly growth rate of 117,000 per month. That's over 87 months of positive growth per month before we get back to pre-recession employment. I bet it takes a helluva lot longer than that...

    Entitlements, government layers, and the % of employed that are NON-government workers must increase. I am sure most people would be shocked at the total % of employed persons that are government employees.

    If I meet another street cop, teacher, city worker, alderman, fireman, garbage man, water department official, mayor, etc making $100,000+ a year and working lazily at their job so they can qualify for the pension and "retire" I might puke knowing we have to pay it. All of these are zero dollar producing roles that only show up on the expense side of the P&L...

  • Report this Comment On August 06, 2011, at 9:29 AM, optswan wrote:

    I agree with S&P that we are not a AAA nation. However, it is interesting to note the inconsistencies in their ratings. Not long ago they rated mortgage backed securities AAA. So we should not hold them on a pedestal.

    As for our current situation, we have to blame the politicians for doing nothing to fix our structural problems. We need to start by looking at our trade situation. Why did we lose all those manufacturing jobs?

    I think this started with China artificially devaluing their currency by 50% in 1994. You can see the results ever since then. All the manufacturing has gone to them. We need to have a tariff on their goods unless they revalue their currency. I think this will create more jobs in the US and thus more tax revenues.

    I also wonder why the President does not call up the CFTC and ask them to raise the margin requirements for oil futures to 50%. Remember these were the requirements in 2000. I think this would drop oil prices anywhere from $30 to $40 a barrel. Which would mean a drop of around $1 to $1.50 per gallon at the pump. Now the only justification for not doing this is that banks own a lot of oil futures and if we did this we would have to bail them out again. These are the tough choices that need to be made. Otherwise, we continue to have no growth.

  • Report this Comment On August 06, 2011, at 9:51 AM, migulone wrote:

    Wolfmann made a comment yesterday about someone elses partisan comment. I think it is clear where his sentiments lie politically, and mine are somewhat left of him. He sounds intelligent, and has reasoned opinions; so do I. I am soooooo glad that this chat is NOT a Marketwatch rant; it gives me hope. When so many of our politicians poo-poo, or completely ignore the fiscal consequences of their decisions, maybe, MAYBE emergency footing, and rational thinking may prove to be the catalyst for real change. Maybe cooperation and progress will be the option of last resort. Maybe this could turn out to be a good thing in the long run.

    Maybe.

  • Report this Comment On August 06, 2011, at 10:25 AM, VExplorer wrote:

    <<

    First and foremost - we need to bring back "Made in America" and get Americans back to work!!

    >>

    First will happened, second will not. I'm looking for leading robot manufacturer an software developers.

  • Report this Comment On August 06, 2011, at 10:28 AM, gardiananj wrote:

    Bottom line thinking. Congress and/or politicians cannot be "that" stupid. They read the same stories we all do, they see the same "picture show". So how can it be that they seem to make all these stupid decisions? What's the bottom line? As is always the case....MONEY. They may not be getting it "illegally", technically speaking, but they ARE getting it. You can be sure that even though the economy is in the dumps and WE are all losing money, they are not. Vote the b......s out. That is the bottom line solution. Cut off their funds. Hit them in the wallet where it hurts and then we can begin to make some progress.

  • Report this Comment On August 06, 2011, at 11:22 AM, David369 wrote:

    Yeah, I agree. Vote them all out! What we get may not be better but they can at least see what happened to the guy they replaced and maybe act slightly more intelligently...very slightly probably.

  • Report this Comment On August 06, 2011, at 12:50 PM, CoastalTrader wrote:

    Bear in mind that this represents a "split rating" and that the other agencies are not moving to downgrade at this time. Furthermore S&P is the agency least likely to win an "award for excellence".

    Here is an example of the pre-employment test given to S&P employees:

    1) What color is an orange?

    2) What kind of trees do walnuts come from?

    3) True or False, Syphilis is the king of Greece?

    4) If you have 5 chocolates and eat 2, how many do you have left? (Most common answer: Can I use a calculator?)

  • Report this Comment On August 06, 2011, at 2:28 PM, Anysimplefool wrote:

    Sad day, TMF comments have degenerated to the level of Yahoo.

  • Report this Comment On August 06, 2011, at 3:19 PM, olddude39 wrote:

    Wildduffy!!

    Obama(along with his big government Dems along with the Rhino's) is making him a 1 term'er!

  • Report this Comment On August 06, 2011, at 3:30 PM, GeneralJoe wrote:

    Two words...corporation usa...the source of all of our economic and social ills. Google it.

  • Report this Comment On August 06, 2011, at 4:15 PM, xman11530 wrote:

    Completely absurd to downgrade US to below AAA while keeping any US corporation or any other sovereign that has a currency completely exchangeable to US$ as AAA...

    The US Federal government will create as many US$ as needed to pay any debts incurred..(Not saying those debts will be worth much, but they will be paid 100% in full with devalued US$.)

    On the other hand, I wouldn't want to be long the US$, which is headed for zero (also pulling down every other exchangeable currency with it), but I don't believe ratings agencies are arbiters of currency or commodity risk.

  • Report this Comment On August 07, 2011, at 12:27 AM, thebonezone wrote:

    Alot of people are giving the S&P grief over this downgrade; but people have to keep in mind the heat they took over complacently keeping high credit ratings on banks and subprime debt prior to the 2008 crash. It makes sense that they would jump out and make a vocal downgrade early this time, they have to protect their credibility. It should be noted that Congress highjacking the debt ceiling talks played the biggest role in this issue, seriously, since when did "compromise" and "moderate" become such dirty words?

  • Report this Comment On August 07, 2011, at 12:55 AM, noggenfloggen wrote:

    Where was s&p when we eliminated so many taxes for the ultra wealthy and corporations? And where were they when we started accumulating so much debt to pay for war? Not a peep from them then- not a warning of any kind. Now do they expect the poor to go without food, health care and social security in old age?

  • Report this Comment On August 07, 2011, at 3:12 AM, ahemhmm wrote:

    This is a comment I also posted on seeking alpha.

    How convenient is all this from the Federal Reserves perspective. We must remember the Federal Reserve is a private banking corporation with one thing in mind - profit. It has stronger ties with other central banks in the world than to the american public. Don't be fooled by the name "Federal Reserve"

    How can a central Bank make the most profit? Its simple, first you spill money into the market with easy loans, that gets the public tied up. Then you empower politicians and presidents to borrow huge amounts of money, all throughout history wars have always been the best way to force governments to borrow huge amounts of money from central banks. Then as the currency eventually declines in value due to overprinting, they simply shift their focus to gold as a "safe haven" Ron Paul asking Bernanke "Is Gold Money?" comes to mind. That got Bernanke stuttering for a second until he found a way out with meaningless analogies, diamonds etc. We all know that Gold is as good as money because the Federal Reserve and other central banks want it that way.

    Next step is to tighten the money supply. Loans become harder to get, the reason for that is then "in order to protect the banks and the economy". That way the public frantically approves more government borrowing in order to keep the dried out economy moving. Even though it is perfectly clear that at this point the currency is headed downhill and anybody who knows economy knows that this cycle started way before the "bailouts and stimulus packages" occur. The Federal Reserve at this point doesn't care about the currency anymore as it has shifted to Gold and other international ventures of which they have to give absolutely no account to the public.

    Then comes of course the inevitable, a market crash. The market crash kils two birds with one stone. It potentially helps to stabilize the currency against inflation as it reduces the currency in circulation dramatically (if the shareholders panic, which they usually do) while on the other hand it makes the public and the government even more enslaved to borrowing.

    Then to gain absolute control they eventually play with the power to raise or lower interest rates again. The slightest raise in interest rates at this point would cover the streets with blood, wars would easily be triggered as nobody truly understands the manipulations behind it all. All you would need is control over the media (which they have) and that would make it easy to create panic in whatever way necessary.

    One thing they have going against themselves is that it is becoming more and more difficult to throw the planet into a war as we are becoming more and more globalised.

    Imagine how much currency this crash of 2011 is withdrawing from circulation and how quickly! Its perfect, loan the money to the government and take it from the people, which means the public is borrowing back the money that it just lost due to the central banks manipulation.

    Isn't it interesting how calm Bernanke is regarding inflation, he knows that it can be kept at bay because there are still ways to remove money from circulation. ... but who is paying the bill, once again??!! Pretty much all of the most loved presidents of this country were absolutely outspoken against the central banks, out of a simple reason, they operate for their own profit and they are not bound by the borders of a country and patriotism.

    Andrew Jackson was the only president that was able to unite the publics interest against the central banks and won.

    It is very simple to avoid this debt solution to get out of hands even more, the government has to print its own money (which it already does) but this money has to be interest free to the government. How ridiculous is it anyways that a government has to pay interest on its own money!

    Then a institution has to be instated whose job it is to monitor how much money can be printed in relation to the market. A institution similar to what the Federal Reserve is sold to us as, only that this institution would be an AMERICAN institution with American interest first! ... and it is not in it to make a profit. It is purely functioning on behalf of the government to control the printing of money. Who cares about a credit rating then? And if we supposedly can not trust such a governmental institution to do the job right then why the hell should we trust the Federal Reserve? The Federal Reserve has been in power now for 98 years and the result is a disaster. This should be the next battle that the people of this country should be fighting in order to get themselves out of this mess instead of blaming democrats and republicans.

  • Report this Comment On August 07, 2011, at 7:32 AM, timomimo wrote:

    If a person runs into financial problems, how do they work their way out of it? Is spending more money a wise decision? Perhaps they could increase their income. Good idea if they have the power to raise their monthly wage. Most people can't do this. The easy way would be to print counterfeit money. That way you would not have to work, but would enjoy increased income. The common sense way is to decrease spending. Cut back. Sacrifice like ant wise person would do in their private live..

  • Report this Comment On August 07, 2011, at 11:17 AM, cl0wn wrote:

    Standard & Poor's is owned by McGraw-Hill Companies, Inc. - NYSE: MHP

    Vote with your diminished dollars and Sell their stock

  • Report this Comment On August 07, 2011, at 11:55 AM, celicajdl wrote:

    Its seem that no one is interested in bettering the the united states. All politicians are paid off in one form or another. The true thinking behind the rest of the world is greed. We use to say greed is what pushed us forward and now has gotten the best of us. It has turned the system corrupt and every one in it. then its also true that we have the all mighty federal reserve playing puppet master to the world and have no care where the US is going. It seems that thing aren't going to get better before they get worse and we really see what we have done to ourselves. I know one thing though. The politicians can't keep the public in the dark any more by saying every thing is fine. And hopefully this down grade will shed some more light to what is really going on.

  • Report this Comment On August 07, 2011, at 12:53 PM, RobMonaco wrote:

    I wonder what "Helicopter Ben has to say about this, he needs to order a Boeing 747 right now!

  • Report this Comment On August 07, 2011, at 2:11 PM, medicalquack wrote:

    I found it interesting too on the "math" questions here and we need to keep an open eye on how credit companies are selling their analytical algorithms and make note of how FICO thinks a credit rating can help determine if a patient will take their medications? This is an all out mis match of data in my opinion and when it comes to analytics how the marketing drive to make money is evolving.

    There are algorithms that create accurate results and those that create "desired" results and the task of determining which is which is a nightmare at times as the financial technology continues to work those algos to where the average citizen has no clue.

    http://ducknetweb.blogspot.com/2011/06/fico-analytics-press-...

    I think they reduced the credit rating "simply because they could" and again this does not excuse past behavior either. If nothing else this is a wake up call for some regulation here as what will be next when "because they can" enters the picture.

    Back in 2009 I made a post about the US needing some type of "Department of Algorithms" with financial software and the SEC could certainly use a tool as such and there will be more mis matches with claims of savings, etc. and they will do that, but at what cost is the problem with denying care and sometimes drugs.

    http://ducknetweb.blogspot.com/2009/08/department-of-algorit...

  • Report this Comment On August 08, 2011, at 11:37 AM, MaxTheTerrible wrote:

    Job well done, Congress!

  • Report this Comment On August 12, 2011, at 1:23 PM, TSIndiana wrote:

    We seem to forget that the entire money supply is increased by only one method...debt owed to the FED. It all carries interest, that's why it is a "note".

    Graph $1 borrowed in 1913 and compound it at an average interest of 6% for 100 years. The graph represents all US debt, public and private... it is uncanny how well it fits history.

    But alarming is the rate after about 1980. It begins to grow exponentially. Ever smaller reserve requirements hid this very well untill recently.

    Now we have thrown a blockade in front of a fast moving train, expecting to "cut" our growth in debt while still having something left to invest in job creation. What a crock of poop.

    We have a serious structural problem of making debt our only way to increase the money supply for a growing population that faces some level of inflation for basic needs.

    Now the trains engine has wrecked and we expect things to magically get better. No, the track ahead has been removed and the pile-up is just beginning. Not every car is derailed (like the recent up in the Dow) but the engine has disappeared in the river below.

    Do you believe in the magic industrial fairy thats going to bring meaningful jobs and living wages?

  • Report this Comment On August 12, 2011, at 3:24 PM, SkepticI wrote:

    So here we are days later and the Treasury Yield Curve (Daily) has barely budged, and the REAL rates are negative up to 10 years. We could argue for decades and have about where to cut expenditures, which is our real problem. The FACT that as a country we pour money down ratholes to no particular economic benefit and call it economic stimulus doesn't even register with most people *see above* In my state OR we spent over 150 million on "planning" for a new bridge over the Columbia River. NO dirt moved, no steel up, not even a pile driven, all paper and people- Over 150 million. Mostly Federal and state tax money. I could cite more than a dozen other examples, but no doubt you could too if you thought about it.

    SO, the real problems are a whole lot of people (like about 50%) pay zip in income tax, just don't give a rip that most of it is wasted, and our wonderful government officials, managers (I use the term loosely) and employees spend it on a good deal of wasteful, useless and overly expensive activities that get us maybe 50 cents of REAL economic value for each dollar of taxes. Maybe I am overly generous here....

    The US is so productive and frugal in the private sector that we have been able to live with this for a couple of decades, but now its catching up with us. If we were a corporation, we would have been bankrupt with that philosophy about a decade ago. Not immediately as most assume, there is incredible inertia, just look at how long it took Enron to be exposed and fail.

    The only lasting road to jobs and growth that actually mean something and create value for you and me is to spend it on REAL Productive Value. The Interstate highway system did this. The light rails in metro areas burned value at a scary rate (you can look up the stats yourself). The internet added huge value to the economy, the investments in Amtrak burned value at sustained and alarming rates.

    Between 1959 and 1980, the national forest system not only paid for the US Forest Service operations, built roads, recreational facilities from timber sales, it returned a surplus to the treasury. Now its a basket case consuming tax money for operation, but sits on land that is out of the tax base in Oregon, Nevada, Idaho etc. It regularly attracts protests, lawsuits and a segment of people who think no trees should be cut, but spend their money on lawyers, generating NON PROFIT contributions and generally declining to participate in paying for what they have made a welfare queen.

    The only major sector of the country that has not increased its productivity by double digits in the last 20 years is government (all levels). This is despite the development of the PC, internet, smart sensors, phones etc etc, all of which SHOULD have allowed administrative and regulatory activity to be more than 10 times its efficiency in the pre micro chip era. Somehow, we allowed the LEAST productive and most value destroying sector of our country to grow faster than the rest...what a bunch of maroons....I include myself.

    If anyone thought this lunacy could go on forever, or that it could simply be cured by (fill in the blank, electing R's or giving D's a super majority or a Pres that embraces change, or stopping the wars, or gutting defense, or raising taxes on the rich etc etc) a specific change without a change in our understanding or attitude, you are mistaken and history bears it out.

    " we cannot hope to solve our significant problems by engaging in thinking at the same level we were at when we created those problems" A. Einstien

    I may have mangled the quote a bit but the attribution and sentiment are correct.

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