Regrettably U.S. Credit Rating Downgrade is Deserved

I can't believe that I'm even writing about this but here goes...

On Friday, Aug. 5, 2011, Standard & Poor's lowered the long term credit rating of the United States from AAA to AA+. This date is now historic because this lowering of the credit rating has never happened to the United States before in its history.

Now, I'm not a financial guru or a dedicated political analyst. I'm just a guy that watches the news when I get home just like anyone else, so let's look at some of the events that occured just last month. Reenacting here, remember something like this...Congressional leaders meet and try to address raising the debt ceiling; Without a raise in the debt ceiling, the United States would go into default on Aug. 2. (Not my words, just what I saw on the T.V.)  

Congress meets but Republicans walk out. Congress meets and Democrats walk out. President meets with House Speaker and President walks out. Tea Party not budging on debt ceiling talks...blah, blah, blah...

Basically the same headlines continue, just different political entities being blamed or walking away from discussion. Even China chimes in stating that the United States must cure its addiction to debt and get its house in order.

Well, finally, an agreement is reached where the debt ceiling is raised and budget cuts are agreed on. But has the crisis been averted?

On July 31, two days before the United States would go into default (again, not my words, but people much smarter than I.) and the vote now goes to the House of Representatives.

The next day (one day before default.), the House passes the legislation and now the vote goes to the Senate, but of course not on Aug. 1, but the next day, Aug. 2.

On that day, the Senate gets the legislation, it passes and gets forwarded to the President mere hours before the United States would default. Let me repeat that...mere hours before default.

Congressional leaders all take credit for giving in a little or holding firm and the crisis is averted. But is it? No! What the United States did was show the world that "they missed a bullet" but the next time the debt ceiling and budget cuts discussions are held, the United States may in fact default. Afterall, they were just hours away from default on Aug. 2.

Let me say it another way...let's pretend I call my home mortgage bank, credit card institutions, home equity loan bank and my PC Richards bank and get them all in the same room. Now let's further pretend that I'm going to announce to all of them that I may default on all of them and all of the money that they have lent to me. I give them a date. Now let's say I announce to all of my lenders that I may default on all of them two or three more times and hours just before the date that I gave them. Now, let's say I announce to all the lenders, hours before my defaut date, that "everything's now fine." I will not default and I will continue to pay my bills to all of them. What do you think will go through the minds of my lenders if next month, I want to call all of them into the same room again?

My guess is that they would not be very happy having me yelling "default" again to them and they might start taking immediate actions such as raising my interest rate, reducing my credit limit or just close out my account, since afterall, I nearly defaulted once already.