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US AAA Credit Rating Facing Imminent Downgrade

United States President Barack Obama signs int...
Signing of Financial Recovery Law

According to Fox News analyst, Stuart Varney, even short term budget cuts may not be enough at this point to avert a downgrade in US sovereign credit, its AAA credit rating. We could still get a downgrade, even if there is resolution to raising the debt limit this weekend, especially without accompanying budget cuts.

Charlie Gasparino, also with Fox News, believes that the downgrade is already “baked in,” and will possibly take place even before the markets open Monday. Gasparino also believes the president made a crucial error on Friday, using the “default” word in a press conference, which could “spook” the market, regardless of any S&P actions.  David Beers, S&P Credit Analyst, has stated that his agency’s ratings decision on US financial status, which could be issued before month end, depend their assessment of whether the rising trajectory of the US debt burden and revenue gap can be narrowed by all these debt ceiling negotiations and pending legislation in Washington DC.

Former President Bill Clinton thinks that President Obama should act unilaterally under the 14th Amendment, allowing the US to continue its spending binge.  Ron Paul, who is appearing more prescient as events unfold, is now saying the best thing could be a Federal government default, at this point for our financial markets. This could make some sense, in that politicians will be forced to do their real job for a change, in making some hard decisions about our profligate spending addiction, although the changes would be extremely painful.  This could be unrealistic, since in August, about 50% of Federal obligations would have to go unpaid, shutting down entire departments of the Federal government.

Although House Republicans have voted to raise the debt ceiling in their “Cut, Cap, and Balance” proposal, Obama is obviously still resistant and asking for tax increases instead, along with a $2.4 trillion increase in the ceiling. Herman Cain, Republican presidential candidate, believes that Obama has been attempting to use this “crisis” to achieve his party’s goal of higher taxes rates on the “very rich.”

President Obama is “almost desperate,” according to Varney since the US for the first time in memory could take a downgrade. According to Stuart Varney, there will be some kind of reaction in the financial markets come Monday morning, although he was not willing to predict what it would be. This weekend, Obama has called an emergency meeting at the White House to “resolve” the looming debt ceiling issue. This may be a red herring because, in reality, he has a much bigger problem if Varney is correct.

 

What are the implications for the US of losing it’s credit rating?

  • Higher interest rates – the US Government would be bankrupt (unable to pay even its interest obligations) much sooner that presently projected.
  • A Treasury auction for US Bonds scheduled August 4th, if boycotted, could accelerate any impending issues surrounding the country’s financial crisis.
  • Hasten the insolvency of Social Security (now projected for 2036) and Medicare (now projected for 2020)

The crisis, certainly has become a high-wire act for many politicians, but losing our AAA Credit Rating affects everyone in the country eventually with unlimited unintended consequences.  Are there actions that you can take to protect youself, your family, and grandchildren even at this late date?  The Bitcoin Wealth Alliance offers a possible alternative based on the preserving value of collectibles and a modern currency alternative.

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