I have heard a lot of talk about a potential U.S. credit-rating downgrade.
Many people, including myself, seem to believe that a U.S. default is unlikely because the two parties, much like the NFL did this past week, will come to a deal right before the deadline.
However, most of the rating agencies have stated that if there aren’t deep cuts and serious efforts to get the deficit down, they may downgrade the credit rating of United States.
This really isn’t a big deal. AA-plus is still a high rating. There probably won’t be significantly higher rates in the wake of a downgrade.
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I live in the Bahamas and the rating here is BBB-plus. I can tell you that business goes on: people can get loans and interest rates aren’t outrageous. Japan has an AA-minus rating and the lowest interest rates in the world. I lived in Canada when it was downgraded in the early 1990s and the world didn’t end.
However, a downgrade is symbolic. It is a travesty and an embarrassment.
Instead of blaming the ratings agencies for missing the boat during the financial crisis and now putting America in a bad position, we should look at the facts.
The U.S. economy, at $17 trillion, is the largest in the world. There are incredible amounts of wealth in the country. It is the world’s super power and reserve currency.
To even have a downgrade talked about is embarrassing. It should have never even gotten to this point. There should be outrage over this. The fact that the U.S. government is living so beyond its means is ridiculous.
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Unfortunately, this was all too predictable. The cycles of declining empires is usually the same and one of the aspects of it is a government that becomes way too overextended through a combination of wars and a welfare state.
In my book “The Great Super Cycle,” I predicted a large decline in the dollar and a debt crisis in the United States. I still think we are in the early stages of this.
There is no will in Washington to solve the debt problem.
The next phase will see an accelerated decline in the value of the U.S. dollar and higher interest rates going forward. Inflation will take off.
This first talk of downgrades is just the start!
About the Author: David Skarica
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