On the brink of another round of financial ruin in our generation's Great Recession, our national leaders finally found a marginal compromise that increased the nation’s debt limit and allowed America to keep paying its bills. To get to the point where our leaders finally did what they should have done all along, they put our people, businesses and financial markets through a disgusting procedural drama. Still, in the end, an agreement was reached, and as deeply flawed the deal was, it was a deal.
A mere three days after the deal was struck for America to pay her bills, one of the major ratings agencies (that determines the safety of all kinds of financial products which, in turn gives those products their value) Standard & Poor’s downgraded our nation’s rating. It is unprecedented.
America has never been below the best AAA-rating, meaning that our nation can borrow money at the lowest possible interest rates, until now. As far as I know, America has still never missed a payment when we owed money (though how we pay for those bills – through borrowing – is a terrible way to do so) and is still regarded as the safest place to invest money.
In the world of government finance, normally a rating agency such as Standard & Poor’s would give a stern warning in the form of a “negative outlook” on the government long before making such a huge decision that could impact every household and economy in the world. Since America had shown we would continue to pay our bills, a new more forceful negative outlook would have served the purpose of showing disdain for our political process without such an enormous impact on the economy.
What is the impact? It can quickly be seen in the fallout in the stock market and markets around the world today. The 600 point drop today resulting from Standard & Poor’s decision impacts everyone (even if you don’t hold any stocks) because almost every government and pension plan nationwide is heavily invested in the Stock Market – meaning they are less solvent and more unstable and more expensive today for the people they serve. If you were expecting higher taxes and fewer benefits from all of this mess, now you just might.
All of this doesn’t even begin to touch on the horrendous performance of the rating agencies themselves, and how much we should trust their judgment. I will leave that critique to this article (click here).
In the end, as I’ve talked about many times before, America’s finances must be managed better by the leaders we send to Washington. There is no doubt that the past months have shown our political process is a mess. Was the downgrade about Tea Party/Republican intransigence? Was it that the President was late to the debate, came in with promise, and then stepped out of the way at the very end? Or was it just a part of our ideologically-driven sensationalist media efforts that have pushed our leaders ever further from real compromise?
I do not know. But, I do know that Standard & Poor’s downgrade of America was a hair-triggered response to our current crisis that could have far-reaching impacts on our pocketbooks for years to come.
