The U.S. Credit Rating Downgrade's Impact on Everyday Americans

Quite a few people have asked me what the credit downgrade means for the average person. Well first, it's too early to tell. The reason for that is that our response after the credit downgrade was actually people flooding to buy more treasuries!

So the question is, isn't a downgrade supposed to be an indication that a country can't pay their bills? If so, why did people go out and buy more treasuries (which means lend MORE money to the United States)? At MGO, we have a weekly investment research meeting, and this week our meeting was long and very insightful. One of the things that was mentioned was that the likelihood of a U.S. default is very small (almost 0) for one major reason: we can always just print more money and pay our bills. 

Yes, there are more major ramifications for that down the road, but if we really couldn't get anyone to lend us money (buy our treasuries) we could always print more money and pay our bills. In addition, we are still probably the most secure debt in the world even though there are four or five countries that now have a better "rating" than the United States. 

We have the most liquid marketplace for debt in the world and people still very much believe in the long-term aspect of our country. I draw the analogy to that perfect student that was in your class back in grade school.  They ALWAYS got 100% on their tests. All of a sudden, 8th grade rolls around and they're still #1, but they're getting 98% instead of 100%.

Again, I am not saying the U.S. can just not worry about its financial issues, but relative to other countries and the world, we are doing quite fine. Now, the major POSITIVE that will come out of this is maybe it will be a wake-up call for all the losers in Washington to stop spending so much and get this under control. Rich folks: Brace yourselves because you WILL be taxed higher. That's inevitable.

We will have to spend less on government programs, and even the Pentagon has accepted cuts in its budgets. It is just going to have to happen fairly soon or in a few decades, we will be in a big mess that will warrant a "real" credit downgrade.