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The S&P Downgrade Is a Wake Call for All Americans


When Standard & Poors downgraded Spain's bonds from AAA to AA+ in January 2009, its interest rates increased from 4.1 to 4.3 percent.

When the same ratings agency downgraded Ireland's from AAA to AA+ in March 2009, their interest rate rose by about 0.4 percentage points.

So what does that mean  for Standard & Poors in terms of downgrading the U.S. bond rating?

With our $14.6 trillion in national debt, raising the U.S. government interest rates by the same amounts would eventually add about $29 to $58 billion a year in increased interest costs -- small change when we are already facing a $1.63 trillion deficit this year. And not all of that increase would be immediately felt since we only face the higher interest rate on newly issued bonds.

The problem with these downgrades is that they have a tendency to quickly spiral out of control.

Higher interest rates mean that the deficits start getting bigger, and countries then quickly face another downgrade.

Countries facing these higher interest rates haven't responded by immediately cutting spending to offset the costs of the higher interest rates. And those initial downgrades are soon quickly followed by further downgrades.

Spain's downgrade in January 2009 was then followed by another downgrade to AA status in April.

Ireland also soon faced another downgrade to AA just three months later in June.

Additional downgrades have since followed. In the time before the initial downgrade until now, Spain's 10-year government bond interest rates have gone up by two full percentage points.Ireland's by 4.5 percentage points. With those increases, we are talking about serious increases in deficits.

Given that world interest rates have been falling over this period, the true cost of the money these countries need to borrow has actually gone up by more than this amount.

For the U.S., such increased interest rates would eventually mean increased interest payments of between $292 billion and $657 billion a year.

What was just an initial irritation has, in the course of just a couple of years, become serious problems for these other countries, and it should serve as a real wake up call for the U.S.

The fact that the recently agreed to budget agreement only cuts $22 billion from next year's projected $3.7 trillion budget should worry everyone. But it was one of the conditions that Democrats demanded for any debt ceiling agreement.

It should be clear to everyone now that the threat the U.S. faced over the August 2 debt ceiling deadline was not over the false scare tactic claims of default, but over whether the U.S. was willing to actually control the huge deficits that we are facing.

S&P's decision to downgrade the U.S. bond rating isn’t a real disaster yet, but it is a wake up call. And it's one that should force Washington’s politicians to re-examine the debt ceiling deal that they just made.

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Margaret Thatcher once stated the absolutely obvious when she declared that you can't buck the market.

The credit re-rating is the thin end of the wedge and unless the US gets a grip this will be a slippery slope.  Fox is saying tonight that Americans don't necessarily welcome cuts but the road that the US is on will take matters out of the politician's hands if they're not careful.

The western world appears to be in denial about reality and that is a recipe for social and political disaster

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Originally Posted by Dødherre Mørktre:
The S&P Downgrade Is a Wake Call for All Americans


When Standard & Poors downgraded Spain's bonds from AAA to AA+ in January 2009, its interest rates increased from 4.1 to 4.3 percent.

When the same ratings agency downgraded Ireland's from AAA to AA+ in March 2009, their interest rate rose by about 0.4 percentage points.

So what does that mean  for Standard & Poors in terms of downgrading the U.S. bond rating?

With our $14.6 trillion in national debt, raising the U.S. government interest rates by the same amounts would eventually add about $29 to $58 billion a year in increased interest costs -- small change when we are already facing a $1.63 trillion deficit this year. And not all of that increase would be immediately felt since we only face the higher interest rate on newly issued bonds.

The problem with these downgrades is that they have a tendency to quickly spiral out of control.

Higher interest rates mean that the deficits start getting bigger, and countries then quickly face another downgrade.

Countries facing these higher interest rates haven't responded by immediately cutting spending to offset the costs of the higher interest rates. And those initial downgrades are soon quickly followed by further downgrades.

Spain's downgrade in January 2009 was then followed by another downgrade to AA status in April.

Ireland also soon faced another downgrade to AA just three months later in June.

Additional downgrades have since followed. In the time before the initial downgrade until now, Spain's 10-year government bond interest rates have gone up by two full percentage points.Ireland's by 4.5 percentage points. With those increases, we are talking about serious increases in deficits.

Given that world interest rates have been falling over this period, the true cost of the money these countries need to borrow has actually gone up by more than this amount.

For the U.S., such increased interest rates would eventually mean increased interest payments of between $292 billion and $657 billion a year.

What was just an initial irritation has, in the course of just a couple of years, become serious problems for these other countries, and it should serve as a real wake up call for the U.S.

The fact that the recently agreed to budget agreement only cuts $22 billion from next year's projected $3.7 trillion budget should worry everyone. But it was one of the conditions that Democrats demanded for any debt ceiling agreement.

It should be clear to everyone now that the threat the U.S. faced over the August 2 debt ceiling deadline was not over the false scare tactic claims of default, but over whether the U.S. was willing to actually control the huge deficits that we are facing.

S&P's decision to downgrade the U.S. bond rating isn’t a real disaster yet, but it is a wake up call. And it's one that should force Washington’s politicians to re-examine the debt ceiling deal that they just made.

That is what us real conservatives have been telling others for quite sometime. It is beyond me how some still hold on to the false belief of spending your way out of a crisis. It ruins finances on a personal level as well as on a national level. Lunacy knows no limits. It will get worse still. AA+ is not where we are gonna end up. I actually can see us dropping fairly quickly (within the next couple of years) to an AA-. How is that gonna affect us??? Will the idiots still scream for increased spending??? On the good side......gold is up. I told you guys a few years back to start buying gold. I wonder if anyone listened???

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Originally Posted by Alun Hughes:
Margaret Thatcher once stated the absolutely obvious when she declared that you can't buck the market.

The credit re-rating is the thin end of the wedge and unless the US gets a grip this will be a slippery slope.  Fox is saying tonight that Americans don't necessarily welcome cuts but the road that the US is on will take matters out of the politician's hands if they're not careful.

The western world appears to be in denial about reality and that is a recipe for social and political disaster

Alun!!! Welcome to Facebook. Glad you found us.

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Originally Posted by Mark Simmons:
I told you guys a few years back to start buying gold. I wonder if anyone listened???

i wish bro. all of my money has been invested in groceries and electricity lol.

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The simple truth is that politics is played in the margins and both political parties in both the US and the UK have played the competitive game with giveaways.  Accordingly neither the real interests of the individual and certainly not the real interests of the nation are in focus.  Even the (so-called) compromise within the US Congress reeked of political calculation.

Within Europe, the simple truth is that the 'PIGS' are spent and borrowed to the hilt yet the focus of the EU nations was not spending or borrowing.  Every move thus far has been sticking plaster stuff with a cynical eye on votes.  Hopefully the Tea Party will try to keep the focus on principles and genuine interests but I'm not holding my breath.

Sadly, within Europe we have no equivalent

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Originally Posted by Alun Hughes:
The simple truth is that politics is played in the margins and both political parties in both the US and the UK have played the competitive game with giveaways.  

you're absolutely correct. and i hate the establishment that just "plays the game" on the right, just as much as those on the left. maybe even more, because it's easy to have those sorts on the other side, because we know that's what they stand for. but when it comes to the only viable conservative outlet in the nation (the republican party) and you have the same thing happening, like with the neo-cons, it's even worse, because you're fighting within your own ranks, as well as the other party, and it damages the image of conservativism for decades.

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Originally Posted by Mark Simmons:
On the good side......gold is up. I told you guys a few years back to start buying gold. I wonder if anyone listened???

I bought silver.  Its all I could afford.