The fallout from S&P’s downgrading US debt is arrived Monday August 8th:
From the Washington Post August 8, 2011:
Stock markets marked their worst day since the 2008 financial crisis as investors reacted to the historic downgrade of the U.S.’s credit rating by furthering a sell-off that has already wiped out more than a trillion dollars of U.S. stock market wealth.
The blue-chip Dow Jones industrial average plunged 635 points Monday, ending the day at 10,810, down about 5.6 percent.
S&P downgrades U.S. credit rating for first time
Standard & Poor’s announced Friday night that it has downgraded the U.S. credit rating for the first time, dealing a symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system.
Analysts say that, over time, the downgrade could push up borrowing costs for the U.S. government, costing taxpayers tens of billions of dollars a year. It could also drive up interest rates for consumers and companies seeking mortgages, credit cards and business loans.
A downgrade could also have a cascading series of effects on states and localities, including nearly all of those in the Washington metro area. These governments could lose their AAA credit ratings as well, potentially raising the cost of borrowing for schools, roads and parks.
COMMENTARY: Funny how Standard and Poors blew it giving high ratings to mortgage-backed bonds that helped wreck our economy once….now they’re hitting us again.
The consequences of the inability of our government to quit piling up debt, pandering to special interests, juggling the country’s books, giving tax breaks to the rich, funding two wars off-the-books, looking the other way while financial bandits looted the country with funny paper…. is coming home to roost.
Here is a very good analysis of how we got into a $14 trillion hole from the Washington Post:
The nation’s unnerving descent into debt began a decade ago with a choice, not a crisis.
In January 2001, with the budget balanced and clear sailing ahead, the Congressional Budget Office forecast ever-larger annual surpluses indefinitely. The outlook was so rosy, the CBO said, that Washington would have enough money by the end of the decade to pay off everything it owed.
The stock market is responding to this mess.
If all the analyists are right, the federal government (meaning us taxpayers) are going to pay higher interest costs on the national debt.
All our mortgage and other credit obligations will see higher interest costs to the degree the financial system can get away with this, and state and local governments will face higher interest costs to borrow.
Is this our fault as the people having to pay the taxes and debt?
Well….yes to the degree we elected all the folks and sent them to Washington with demands to take care of our special interests and ignore the consequences of running the country into the ground.
From the WaPo article:
Lowering the nation’s rating to one notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bipartisan agreement reached this week to find at least $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.
But were we responsible for the circus that went on in Washington to try and deal with the problems?
Are we respsonsible for Grover Norquist?
Again…from the Washington Post:
…. As House Speaker John A. Boehner has said: Raising taxes is “unacceptable and a non-starter.”
This orthodoxy is now woven so deeply into the party’s identity that all but 13 of 288 GOP lawmakers in Congress have signed a formal pledge not to raise taxes. The strategist who invented the pledge, Grover G. Norquist, compares it to a brand, like Coca-Cola, built on “quality control” so that Republican voters know they will get “the same thing every time.”
Loyalty to the brand is so strong that no Republican has voted for a major federal tax increase since 1991, Norquist says. It is so widespread that more than a dozen governors and hundreds of state legislators now count themselves as adherents. And it is so well defended that its followers are constantly patrolling at both the state and federal levels for new forms of trespass.
Two things come to mind:
One is I will fight any attempt to raise my interest costs of my existing mortgage and other debt because of the DC clown show. The financial wizards expect to rake in billions from the higher interest charges they can make now that S&P downgraded US debt triggering “automatic” interest rate increases tied to T-bills and federal borrowing rates.
I will not pay increased interest costs due to the ratings downgrade and the DC political game show. I will send the bills to Norquist.
Second, as we suffer through the consequences of this political debacle and see our country thrown back into a recession while politicians blame each other and avoid doing the hard stuff necessary…including raising taxes as well as cutting spend and reorganizing entitlement programs….we need to remember who caused all this….from both political parties….come November 2012.
Standard and Poors downgraded