Saturday, August 06, 2011


Carl F. Worden

Standard & Poor's, the preeminent credit rating agency of nations, lowered the credit rating of the United States to AA+ from AAA, and I'm hearing howls of protest when in fact this is probably the very best thing that could have happened. I just wish Moody's and the other credit rating agencies had done the same.

We desperately needed an extrinsic catalyst like this right now. S & P has correctly analyzed the current economic and political climate in the U.S. and acted as they should. I just wish S & P had used the same diligence when they granted AAA status to all those sub-prime mortgage instruments that caused the housing bubble to pop. Nevertheless, I applaud S & P because without this shocking credit downgrade, business as usual in Washington would continue printing money and incurring even more debt. Now they have to act responsibly, and only because they must. S & P made it clear that the U.S. has two years to get their debt controlled and if they do not, the U.S. credit rating will drop even further.

Canada regained their AAA credit rating after cutting spending and the U.S. can do the same. According to S & P, it takes on average 9 to 18 years to regain the AAA rating. If the Congress and this super committee they formed to cut spending/increase revenue now get serious enough to cut REAL spending by $4 trillion dollars over the next ten years, S & P will re-evaluate. But had Congress not been slapped with this downgrade, the debt deal would have cut only $2 trillion dollars in ten years while adding another $7 trillion to the existing $14.3 trillion dollar debt, and as S & P correctly pointed out, that would be a recipe for eventual runaway inflation and the collapse of the entire U.S. monetary system.

That is what is really at stake here: Our entire way of life!

I'm getting all kinds of e-mail from people concerned about the Monday stock market reaction and how this downgrade will affect gold prices, but whatever happens we cannot continue as we were. No matter what the Obama Administration says about this, "unfair" credit rating downgrade (because of some alleged math error to the tune of $2 trillion dollars) it was the political failure of Congress to cut spending by the full $4 trillion dollars over ten years that tipped the scale in favor of the downgrade.

Math is the internationally understood language and it never lies. S & P may have acted somewhat politically, but it really doesn't matter because this downgrade was telegraphed very clearly to the Obama Administration long before the debt deal was cut, and if Obama & Company didn't take the threat seriously they made a terrible and costly mistake. So did House Republican Speaker John Boehner and all his buddies. Politicians will posture and lie to their constituents all they want to in this case, but solid math and the inability to voluntarily cut spending is why the U.S. is now rated at AA+.

I don't anticipate a direct correlation between this credit downgrade and a stock market crash. I do expect the markets to continue to drop, but not exclusively due to this event. The markets were dropping points en masse days before the S & P announcement due to high unemployment and an almost static GDP, so I do not think this credit downgrade will add much to the losses that will probably continue with or without the S & P rating.

This is the opportunity the U.S. desperately needed right now, and make no mistake about it; the S & P downgrade IS an opportunity if we only take advantage of it. If the United States is to maintain its position in the world, we have to cut spending no matter how painful it will be, so thank God for what S & P did, because we will destroy ourselves from within through fiscal irresponsibility if we don't make those REAL cuts right now.

With all due respect to the fine men and women of the Tea Party who were elected to stop the spending, they were unable to force their will and even some of them turned traitor in the final vote. It took the S & P downgrade to accomplish what they couldn't and what their fellow Republicans wouldn't. If this is what it takes to rein-in a government hell-bent on self destruction through political self-preservation, then I once again say, "Thank God for the S & P!"


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