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U.S.' debt rating at risk...

If you're going to pay attention to one story today, this week, this need to be paying attention to this issue. Unlike most of what happens in the news, this could actually affect your life.

We've known this might be coming for a long time. What it essentially means is that if the U.S. doesn't reduce it's deficit spending and start eating away at the $1.5 trillion it owes, then the rating on its bonds will go down, meaning that the government will have to pay more interest to borrow money.

For years...forever, actually...the U.S. has had the best credit rating there is: AAA. Which means that if they borrow money (like when the gov't sells bonds to China), the borrower is virtually gauranteed to get their money back because they can just borrow more money to pay it back. Imagine if you could just keep opening up new Credit Card accounts forever to pay off the debt you've built up...same thing. Unlike for you, however, the cycle can just keep continuing indefinitely, not only because the U.S. can keep borrowing money, but because the bonds are backed up by the "full faith and credit" of the United States of America: a phrase that essentially means "We'll pay you back because hey, we're the U.S. and nothing bad can happen to us."

Well...get ready for one of several scenarios, folks:

1.) The Government reaches a compromise and agrees to make serious cuts to the deficiet. This is the only way to save our credit rating. Sadly, it means big cuts to government programs and, at level of cuts that's necessary, it's going to touch every facet of life for a long, long time. Not only are gov't programs, defense, and infrastructure going to suffer, but banks are going to charge higher interest rates, which means the economy's going to slow down even more.

2.) The credit rating gets cut and the U.S. can't borrow as much. That means we begin defaulting on our debt and our currency starts to go into decline. This could potentially have an upside, since it would mean we can't afford as much foreign merchandise and have to spend more money at home...but, since China pegs its currency to ours, it's debatable how much difference that would make. On the negative side, our currency could really hit the skids and we can't buy anything from overseas, and the entire world goes into decline led by us.

3.) The credit rating gets cut and the U.S. continues to borrow at the same pace we have been. In this case, the National Debt begins to increase at an even faster rate and massive inflation starts to ensue. In that case, again, our dollar becomes worthless: in other words, that $20,000 you have sitting in the bank becomes $2,000 over night. Read up on the Argentine currency crisis that happened about 10 years ago if you want more perspective on this.

In any event, this is bad news. Granted, this is just a "warning" and it's also not the first time this kind of a warning has come out. And there might be some political shenanigans behind the timing of this announcement, as there always are. But this is the kind of thing our Government needs to get sorted out and fast. Keep an eye on this story...


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