US Credit Downgraded from AAA to AA+

[Joshua Dorkin]

According to Reuters, S&P has downgraded the US Credit Rating from AAA to AA+ and may likely downgrade again in the next year plus.

Thoughts? Insight?

I realize this may get political, but think this is an important topic to discuss. Please keep this discussion from getting out of hand. Thank you.

[Jon Holdman]

I believe this is a reflection of the paralysis in our national government. The country's debt woes are solvable in a number of ways. There are a number of levels that can be pulled to fix the spiraling debt. Unfortunately, we've become, at least politically, far to polarized to actually pull any of those levers. Gerrymandered congressional districts have led to safe districts for one party or the other, and those districts generate more and more highly polarized candidates. There is no general election in those districts, only primaries. And the most "whatever" candidate can succeed. At the national level, we have paralysis. I believe everyone does want to make a move to fix the debt problem, but they are all wedded to specific viewpoints and dead set against others. In the end, we just get no movement at all. I believe that at its core, the S&P downgrade is a reflection of the inability of Washington DC to take action.

Fundamentally, we have some very tough choices. Do we want essentially unlimited medical care for seniors and poor people? Do we want a social safety net? Do we want a military that can go fight anywhere in the world on a moments notice with the highest tech available? Do we want subsidized flights into every small airport anywhere in the country? Do we want some of the lowest tax rates on the planet and tax code full of exemptions and special programs, some very near and dear to our hearts right here? And a thousand others. Making these tough choices requires leadership and, yes, compromise. If we want expensive social programs (whether direct like the entitlement programs or indirect like tax breaks) we have to have enough income to pay for them. If we want minimal income (low taxes) we can't afford to spend on these expensive programs. Real leaderships and a move toward the center, whereever that center really is, well have to happen before we can deal with these problems. Yet our system is moving toward just the opposite.

Europe is no better. They've built a "semi national government" either the European congress and the euro zone and are really paralyzed.

The overall economy is a much tougher nut to crack. I do believe the housing bubble is at the core of the problem. Too much money drove up prices and people took that "equity" and spent it. That led to increased production of the goods they were buying which led to increase economic output, increased employment, and still more money sloshing around the system. That demand is NOT coming back. That factory output, whether here in the US or in China is NOT coming back. And those jobs aren't coming back.