US Loses Triple A Credit Rating – It’s About Time

by Darwin on August 5, 2011

S&P, one of the big three credit rating agencies, just dropped America’s AAA Credit Rating, a first in history.  I wonder if democrats and the talking heads on the cable news networks will now start referring to S&P employees as terrorists. Because after all, anyone who critiques America’s wildly reckless spending habits is a terrorist based on last week’s criticism of the Tea Party and Republicans for pushing fiscal prudence in the debt ceiling debate.  I saw several news clips of fiscal conservatives being referred to as terrorists; it became so embarrassing for the party, that Obama had to actually come out and say it should stop.

List of Countries With AAA Credit Ratings

We can now look at all these countries as our superior in creditworthiness – truly the decline of an empire.  The following countries are all holders of AAA ratings as of the time of this writing:

Hong Kong
Isle of Man
Swiss Confederation
United Kingdom


Yes, the Isle of Man now has a higher credit rating than the United States…


Government Meddling in Credit Ratings

All three agencies have threatened over the past several months that they were considering downgrading the US’s vaunted AAA rating given our fiscal trainwreck brewing.  If our current deficits, our debt-to-GDP ratio and our stagnant economy don’t put the scare into you, take a look at this chart on what the media ISN’T telling you about the debt ceiling debate (hint: our future fiscal gap is a number so large, you’ve never heard it mentioned in the mainstream media).  Evidently, the administration has been in contact with each of the ratings agencies over the past several months, surely pressuring them to just shut up about our debt.  See, if the politicians can’t reign in government spending, and Americans continue to vote for politicians that won’t get the job done, then at least the ratings agencies can force some fiscal sanity.  So today, when S&P was on the verge of announcing its official downgrade, the administration “leaked” information in a pathetic last-ditch attempt to discredit the company, claiming that their projections were off by Trillions.  Well, when our fiscal gap is in excess of $100 Trillion, what’s a couple Trillion between friends?  S&P went ahead with the downgrade anyway.

What A US Downgrade Means

Surely, the administration will be in major disaster recovery mode, probably again going to the well and blaming “the failed policies of George Bush” for the downgrade, even though Obama’s spent $4Trillion on his watch only to see the unemployment rate actually rise WHILE a record number of Americans have actually dropped out of the labor force – hint: the real unemployment rate would be over 12% during any other recent period, but so few Americans count in the denominator the the headline rate is artificially low.  People have simply given up.  They’ve gone back to school, gone onto the street, moved in with mom and dad – but they’re not looking so they don’t count.  Leading into this week, we had seen mortgage rates hit incredible new lows, they may well run up again if Treasuries sell of.

Why I’m Glad the US is No Longer AAA

I’m not the first person to cite America’s growing debt problem but I’ve been consistent and on point.  And now that we’re here, we may very well see interest rates rise and a whole cascading effect of consequences we haven’t yet begun to contemplate.  This will be painful for all of us.  Heck, I’m about to close on my first rental real estate deal and that could very well be pulled if the credit market goes to hell again like what we say in 2008.  We may all feel some pain… but this is what it took to wake up Americans, politicians and investors in US Treasuries.  Perhaps this was the ONLY means to enact some real change and in seeking to regain the vaunted AAA status, America will be forced to improve its fiscal behavior so that our children don’t have to live as debt slaves to the selfish behavior of our generation.  Until now, we have been embarking on overt generational theft.  This may finally force the change needed to return this country to greatness.  That is, unless the politicians shrug this off as “that’s only one of the three ratings agencies…so they clearly must be crazy” and continue to kick the can down the road.


{ 23 comments… read them below or add one }

cashflowmantra August 5, 2011 at 11:22 pm

Love the title and the post. Time for every American to examine his/her own finances and get the financial house in order. Only by eliminating much debt and using the interest saved for productive purposes instead on lining the banker’s evil pockets will we have any chance of becoming great again.


Darwin August 5, 2011 at 11:29 pm

Thanks for the encouragement; I’m waiting for the haters to start unloading…sometimes I just can’t help myself.


chris August 6, 2011 at 9:01 am

Good post. I agree with many things you wrote, however I disagree with your implication regarding Obama spending. That smells of partisan politics. I should point out that it is not Bush’s fault either. They are following the same advice that got us into this problem to begin with. The answer is not governmetn intervention any more than we can expect the private sector to come to the rescue – money is now basically ‘free’ and corporations are sitting on cash, meanwhile unemployment is not shrinking. My view is that there are some fundamental changes both in our financial system and our cultural biases that we aren’t going change until the proverbial ‘crap’ hits the fan. Money was at one point the thing that motivated people to work hard, productively and do the right thing. It no longer does that. In that light, letting Wall Street fail would probably been a prudent move. The toy money that Bush and Obama threw at the problem is inconsequential.


Darwin August 6, 2011 at 12:59 pm

Yes, I didn’t appreciate the recklessness of Bush’s policies during his term because the economy was stronger and there was scant mention of a ratings downgrade. Heck, cutting taxes during wartime is unheard of in human history – going back to medieval times they needed to raise taxes to pay for war. But the current administration embarked on this healthcare boondoggle at any cost rather than focusing on jobs and the economy and now with trying to spend their way out of it, that has failed miserably. Until Americans vote with fiscal prudence as a priority over social issues and the promise of “free stuff”, we’re going to continue kicking the can down the road.


krantcents August 6, 2011 at 10:06 am

I see it as a wake up call for our government, although I am not happy about it! Actually, I am sick of the partisan politics and the inability of our politicians working together to solve our problems.


Jay Bradfield August 6, 2011 at 3:21 pm

By “healthcare boondoggle” you mean getting the US closer to a healthcare system that is in line with all of the other countries that are AAA??

I don’t think healthcare reform had much to do with it. It was the administration’s refusal to seriously address entitlement reform from the get go, PLUS the insanity of the left wing of the Democratic party in constantly harassing Obama for making any reasonable deal with the GOP. My concern is that powerful interests in one of the two major parties (namely the left wing of the Democratic party) are weirdly obsessed with fighting any sort of reasonable entitlement reform. This is not a one time thing, it’s not just limited to Obama, it will persist over time unless the left becomes more reasonable (not going to happen).

I’m not hating on the left here, I consider myself left of center, but the response of most leftwing commentators was just nutty.


Darwin August 6, 2011 at 8:03 pm

Funny you mention those other countries that are AAA. Because most of the western countries the Obamites are so enamored with are broke themselves. We’ve come to love the healthcare systems of western europe which is rife with austerity measures, protests and the Euro is completely ready to collapse. So, many of the countries the platitudes are based on will soon be AA themselves.


Sandra August 7, 2011 at 11:16 am

I think that you’ll find that only six of the European countries with triple AAA credit rating are in the eurozone. I don’t think that you’ll find that the Nordic countries, Lichtenstein or Luxembourg are ‘broke.’

The UK, for example, has huge debt but the credit agencies are confident that the public spending cuts are enough to enable the country to repay its debts. There was no politician’s debaucle as seen in Washington in the last few weeks.

I agree with the journalist that the US continues to live in fantasy land and as usual the majority of its citizens have no awareness of foreign policy.


Travis @DebtChronicles August 6, 2011 at 6:55 pm

I’m not so sure that the people later in their careers (with not enough time to recover) that lose large chunks of their retirement savings due to a potential market collapse would agree that they are “glad” that the US was downgraded.

Neither will people just making it paycheck to paycheck who all of a sudden have credit card payments shoot up due to an interest rate increase.

Will this wake up politicians to make more sweeping changes for a better future America? maybe.

But I can hardly say I’m “glad” about the situation.


Darwin August 6, 2011 at 8:06 pm

I have a couple things to say on this.
1) First off, if you’re late in your career and you can’t afford the volatility that stocks carry – and you’re heavy on stocks? Then shame on you. I might have felt bad for people during the 2008 crash because we’d never seen anything like that in our generation. But just after this crash? To go heavy on stocks going into retirement? Call it dumb, call it greedy, call it whatever you like – but people had it coming.
Additionally, if markets sell off 5% on Monday, that shouldn’t mean the difference between someone retiring and not. If they’re that nervous about near-term equities volatility, they should get out.
2) People living with loads of high interest credit card debt don’t have S&P to blame. They obviously have other issues. If a high interest rate goes from 21% to 22%, well, they’re in trouble either way.


Travis @DebtChronicles August 6, 2011 at 11:37 pm

1.) So, what you’re saying is that, if there was someone that (whether late in their career or not) saw the market going up over the last few years and decided to invest some extra money into stocks – and now the market tanks due to this downgrade causing them to lose a sizable amount of money, that they should be “glad?”

2.) I’m a person that is fighting my way back from poor decision making and accumulation of a high debt load. In my budget, every dollar counts, and 1% in an interest rate could mean the difference between continuing to be successful in my fight, and having to take more drastic measures.

I understand where you’re coming from in that you’re hopeful this will shock the politicians into action to make our country more fiscally responsible, creating a better and more stable future. But wouldn’t you rather that they figured out how to do so without causing potential shockwaves throughout the global economy resulting in billions of dollars lost of consumer worth?

Should we really be “glad” about that potential?


Darwin August 7, 2011 at 8:30 pm

Look, you’re citing hypotheticals about people who were irresponsible with their money. How’s this for a hypothetical:

My kids, who by no fault of their own, will inherit Trillions in debt, high interest rates, poor job prospects and the US will no longer be the dominant financial superpower in the world.

Who do you feel for more – the person who started life off on 3rd base by virtue of simply being born and American who participated in the most rampant borrowing spree the nation has ever seen vs. a kid fresh out of school who never had a chance?

I feel bad for future generations and we should get this right. Downgrading the rating has shown to be the ONLY means to drive some change. After Simpson-Bowles was ignored BY THE SAME PREDSIDENT WHO COMMISSIONED THEM, need I say more?


101 Centavos August 7, 2011 at 12:17 am

Should be an interesting election season. Have we reached a stage where real practical reform is just not politically feasible?


Darwin August 7, 2011 at 8:32 pm

I’ve heard a lot of people claiming they’re going to vote for the challenger regardless of whether they’re R or D. I think it’s BS. Americans are just as much to blame as the politicians for not putting fiscal prudence as a top priority in voting decisions. They’re too hung up on gun control, abortion, religion and stuff that doesn’t matter if we’re a third world country in 50 years.


Moneycone August 7, 2011 at 7:41 am

One good thing that might come out of this is that, both parties might actually think about the seriousness of what they’ve done.


Darwin August 7, 2011 at 8:33 pm

It surely must give one pause. But like I’ve always seen this administration do, rather than admit there’s a problem, they’re trying to discredit the messenger. Kinda like after Dems got slammed in mid-terms. Obama came out and said, “Americans must not understand our message”… No, Americans didn’t like the results.


T2 August 7, 2011 at 11:21 am

I’m with Darwin on this one. I’m actually glad to see the ratings downgrade since nothing else has seemed to work with regards to getting anyone’s real attention on the issue. I’m glad that it will create a certain amou t of chaos though I’m not glad that some people will get hurt from it, but then again it’s not like anyone with their eyes open didn’t see this coming.

I think anyone heavily weighted in stocks after the meltdown of 09 is insane with all the manipulation of the markets by Wall Street and the fed. Last week’s slide demonstrates clearly what happens when the primary dealers aren’t given 4 billion daily by the fed to go out buy Apple and Netflix shares with. If you are crazy enough to “invest” in this ponzi, at the very least know your stops and exit points and follow them closely. Anything else and you’re just rolling the dice since the fed can pull liquidity at any time and trash the market, which is what’s happening right now.

I also think the rating downgrade is the best thing to happen as it might finally force us to live within our means. That means a lot less government cheese programs and less dependency on government, but that’s a feature, not a bug.

I think europe is about to get the same downgrade treatment as well since their fiscal house is even worse than ours. When that happens the euro will collapse and Germany will tell the rest of the continent that they’re on their own, and rightly so. Why should prudent Germans be on the hook to bailout the spendthrift piigs?

The whole global ponzi is unsustainable and anything that gets people’s attention and points that out is a good thing since there seems to be little if any desire to acknowledge the issue and fix things. Bring on more ratings downgrades!


brisbenjamin August 7, 2011 at 7:58 pm

Yay Australia AAA, i thought we had a lower one.


Darwin August 7, 2011 at 8:34 pm

Be careful out there – I’ve been reading a lot about a major housing crisis due to oversupply and easy money and speculation. Sounds kinda like our recent history!


Jeff @ Sustainable Life Blog August 8, 2011 at 12:24 pm

While overall I think this could be the slap in the face it takes to actually get things done, I dont have much faith in the S&P. Five thirty eight had a good article about how long they kept Spain, Ireland, Iceland and Greece at ratings far too high. It seems like there was a lot of ratings change by the S&P In Jan of 09 – makes me wonder if they got a leader that actually had the stones to downgrade everyone that should have been downgraded.
The S&P is slowly building back their cred with me, but now its up for people in gov to act on this. Done too late, yes, but that doesnt mean its any less serious and should be considered a joke or something to scoff at.


Darwin August 8, 2011 at 11:44 pm

It’s tough, I read The Big Short and a bunch of other stuff on the complicity of the ratings agencies in the mortgage mess. But it’s like giving a free pass to all sovereigns forever. That just can’t be. Just because they were too lax years back doesn’t mean governments are off the hook permanently when it’s obvious to the regular guy on the street like you and I that we’re broke, ya know?


Jacob @ My Personal Finance Journey August 14, 2011 at 10:24 am

I agree. Bravo to S&P for not being bullied in to delaying the downgrade. It’s good to see the state of things is actually reflected in the ratings. Maybe this will be the wake up call that was needed!


Paula @ August 15, 2011 at 12:11 pm

Wow, reading through the comments, this post has sparked a lot of controversy!

I’m sick of partisan bickering, so I’m staying out of the Bush vs. Obama debate. That debate will only divide us, rather than allow us to come together to solve our problems.

I interpret what you’re saying — that you’re happy about the downgrade — as meaning that you hope this is the swift kick-in-our-butt that we need in order to pull our nation’s finances into order. It’s like “tough love” on a teenager.

I hope that you’re right; that the shock of the downgrade forces the two parties to compromise, to somehow cut entitlements while still stimulating the economy in a time of recession, and to generally spruce up America’s balance sheet. But in a world of fragmented media, niche blogs and carefully divided election districts, I’m afraid that nothing will knock us off our partisan extremism.


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