|Swenson Trends Archive|
AugSTAT: Vol. 1, Num. 2 | August 5, 2011
Suddenly a Downgrade
Well, suddenly, here we are. I guess there's always a first time.
The credit ratings agency, Standard & Poor's, just (Friday at 8 PM) issued a credit rating downgrade for the United States, from AAA to AA+. (The other two ratings agencies, Moody's and Fitch, have not yet downgraded but have issued warnings.)
For the first time, the US long-term credit lacks the highest and most secure triple-A rating, a privilege we've held for seventy years. And the implications are potentially enormous.
It couldn't have come at a worse time for the world's economies. The US just finished an unsettling roller-coaster slide in the market for two weeks (DOW 12,724 -> 11,444), more than a 10% correction. We were not alone at the carnival. The entire world has been similarly shaken, wiping out $5 trillion in wealth. Meanwhile, Europe is simply a mess.
Just a few short months ago, tiny Greece was holding the world hostage with its sovereign debt drama. The larger European community kept throwing ever-larger kitchen sinks into the fiscal sinkhole, none of them working. But now the EU has much larger problems than Greece, Portugal, and Ireland. Italy and Spain sit center stage. They have massive structural problems going forward, yet it is hard to imagine what correctives might work. Italy (8th largest economy) and Spain (12th largest) are each too big to allow to fail but also too big to bail out.
Meanwhile, back on the ranch, we are up to our gullets in our own juices. S&P made their eruptive decision based on the inadequacy of the debt ceiling bill passed on Tuesday. In no uncertain terms, they insist much more is required before we will be able to drag ourselves out of our fiscal ditch.
I began this newsletter service a few months ago with the assertion that the world has changed, has "lurched." It is uncertain what it will all mean. But people will soon wake up to the fact that we cannot continuously defer bad judgment. Sooner or later, the math wins.
Understanding our Generational Shift
(see archives, PRN Vol. 1, Num. 2 "The Lurching of History")
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