Here is an article from ABC that explains the effects of the US government’s credit rating’s downgrade from AAA to AA.
S&P Drops US Credit Rating to AA+: 5 Easy-to-Understand Effects of a Downgrade
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“Standard & Poor’s announced Friday night that it has downgraded the sterling U.S. credit rating for the first time. The move came even though the Treasury Department said that it had found a math error in the firm’s calculations of deficit projections, according to a person familiar with the matter. S&P (Standard and Poor’s) decided to lower the AAA rating, held by the United States for 70 years, to AA+ after a bipartisan debt deal signed into law this week failed to assuage concerns about the nation’s growing spending. Analysts have said a downgrade could increase the cost of borrowing for the U.S. government and lead to tens of billions of dollars in more interest costs per year. That could translate into higher borrowing for consumers and businesses, too.” (source)
I’ve read plenty of economic analysis lately that explains what it means to be downgraded in terms of specifics to our economy. I can’t re-explain them to you now, because I understood them at the time but I’m not experienced enough to know the ins and outs to be able to recall it and then present the information. Here is one analyst’s version of what a downgrade will do to the economy. But I do know it will be bad, and right away, too. Where the article says it will cost us more to borrow it means disaster. That is the bottom line.
Here is the text of the S&P release that accompanied the downgrade:
“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.” What to expect on Monday: ” it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021.” And why all those who have said the downgrade will have no impact on markets will be tested as soon as Monday: “On Monday, we will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors.”
The German magazine Spiegel published today the following opinion piece:
“This week, the United States nearly allowed itself to succumb to economic disaster. Increasingly, the divided country has more in common with a failed state than a democracy. In the face of America’s apparent political insanity, Europe must learn to take care of itself. The word “West” used to have a meaning. It described common goals and values, the dignity of democracy and justice over tyranny and despotism. Now it seems to be a thing of the past. There is no longer a West, and those who would like to use the word — along with Europe and the United States in the same sentence — should just hold their breath. By any definition, America is no longer a Western nation. The US is a country where the system of government has fallen firmly into the hands of the elite. An unruly and aggressive militarism set in motion two costly wars in the past 10 years. Society is not only divided socially and politically — in its ideological blindness the nation is moving even farther away from the core of democracy. It is losing its ability to compromise. America has changed. It has drifted away from the West.”
So USA has reduced economic credibility in fact and is seen to have reduced economic stability in perception. We’ve been said to have cooked the books (according to AP), our debt is 100% of Gross Domestic Product, we are now toxic (being a failed state), and former economic allies are backing away as fast as they can pedal. The USA’s economy is the world’s biggest, so this downgrade will have monumental impacts to the rest of the world’s economy. (As stated by the last line of the S&P release).
I do not know what that impact is or how long it will take to permeate, but I have a feeling it will not be long. I DO know that the book of Revelation in chapter 13 describes an economy that can be controlled by one man down to the specifics of who is participating in it and prevent any person he chooses from buying or selling if they refuse to worship him- the antichrist. In order for the economy to be that tightly controlled, I’ve long been saying that the present economy must collapse, in order to make way for the new economy AND the man proposing to solve the global economic problems which preceded it. Is that time here? God knows, but it really feels like things are not just fraying, but ripping to shreds.
Tomorrow Gov. Rick Perry of TX is calling for a day of prayer and fasting. It is a day that’s been set aside for those purposes since last December, so it is not a response to this current economic crisis, per se. It is a forward thinking Christian man who saw the train coming down the tracks and knew that it was headed in the wrong direction spiritually, economically, politically every way. Here is Joel Rosenberg’s plea for participation in the day of prayer and fasting, even if you are not in Texas. Prayer is not an alternative, it is the only response to a world that is getting further out of control, our control. It is all in God’s hands. If we clasp ours and repent, we will be in His hands, too. And that is a very good place to be.
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