It was bound to happen. You can only run the credit cards up so far before your score takes a hit. Today, Standard & Poor’s lowered the long-term sovereign debt rating of the Untied States to AA+ from AAA. They also left the option on the table to lower it again if they don’t see positive change, and soon. Their reasoning was political risk, rising debt burden and a negative outlook.
This ain’t good. This is going to make everything more expensive. The dollar is likely to take a bath and inflation will rear it’s ugly head and bite the American consumer right on the ass. Don’t fool yourself, inflation has been going on already. Take a look at your electric bill or your grocery bill.
Here’s a link to the announcement y S&P. Credit Portal.
It’s the end of the month and you’re sitting at your kitchen table with a pile of bills in front of you. You begin to tackle them, open checkbook in hand, when you realize you’re going to be a bit short. Mortgage, car payment, TV, internet, electricity, food, and cell are all adding up to more than you brought in this month. In fact you’re about 46% short. How did that happen? Was it all the dinners out? Or maybe that new computer. “Wow! Can’t let that happen again”, you tell yourself. So you dip into your savings to cover the difference, with promises to cut back and watch the budget next month.
Next month rolls around and again you find yourself in the hole. “What the heck is going on here? I gotta cut this crap out!” You beat yourself up and pull more money out of savings to cover it. Month after month, you break the budget. Dipping into that “rainy day” fund you call savings. Then one month you find it’s gone. You haven’t changed anything. You’re still spending money, going out with friends every night. So, you whip out the Visa card and begin transferring balances to cover your butt for another month.
“Things will get better,” you say. But one day you find your cards maxed out, and being a good customer, Visa raises your limit. For a few months everything is good, but then charges begin to be declined. Transfers are not going through. You pick up the phone and call those nice people at Visa to get another extension on your limit.
“I’m sorry, we can’t raise your limit,” the nice Indian lady on the other end says. “You don’t have the means to pay us back. In fact, we have to close this account until it has been paid down.”
So now what? No savings, no credit. How are you going to pay your bills? Do you get a second job? What can you cut out of your life to reduce those expenses that broke your bank? Life has to change or you face bankruptcy. Now you have to live paycheck to paycheck and hope that no emergencies come up. And even scarier, your employer has begun laying people off. What happens if you lose your income completely?
That’s where we are a nation and those are questions our country is facing today. On August 2, 2011 the United States government will hit the debt ceiling and have the credit cards cancelled. The $14,300,000,000,000 (that’s $14.3 trillion for those who don’t want to count the zeroes) limit will mark the end of spending for the US unless Congress votes to raise it another $2 trillion. But like a drunk at the bar, do you give him one more for the road?
The Congressional Budget office released a report this month painting a bleak picture for the future of the American economy and our projected debt. The US government brings in about $2.2 trillion in revenue yet spends about $3.6 trillion a year. That leaves a deficit of $1.4 trillion.
China (America’s Visa card) has recently sold 97% of their holdings of US Treasuries.These T-Bills are short-term investments that usually mature in a year or so. China does not have a favorable view of our future. On June 20th, the Wall Street Journal reported that Russia has decided US debt is too risky and will be lowering their holdings as well.
So, with the credit cards cut off and our sugar daddies running away, where do we get the money to cover our spending? More importantly, how do we fix the problem?
More to come….