Despite Raising Debt Ceiling, U.S. Loses AAA Credit Rating

[mr_pikachu]

Allow me to clarify.

The country used to have the financial credibility of the AAA - that is, the American Automobile Association, a federation of over 50 million members who know how to handle their money well in the event of an automobile emergency or an environmental crisis.

Now we have the financial credibility of AA - that is, Alcoholics Anonymous. Needless to say, members of AA usually have histories of handling their money poorly and/or having little of it TO handle due to their own personal vices.

Now you know. And knowing is half the battle!

Blademaster, that's the hardest I've laughed at a post in a very long time.

DZ, think of the debt ceiling like a credit card limit and the national debt like the amount of money we owe on that card. When you use a credit card, you can spend money until the point at which you reach your limit. (Of course, you have to pay interest on whatever you owe, and eventually you'll want to pay back that money, or else you'll just be paying interest and draining your own assets forever.)

The difference between the Visa card that you might own and the government's debt ceiling is that we can't choose to raise our credit limit at will to give ourselves more room to spend. But the debt ceiling is the self-imposed limit by the government on how much it is willing to owe, and it can be raised at any time (as long as Congress and the President agree to do so). In the past, any time that we've needed to raise the debt ceiling to avoid defaulting as a country, we've done so. The reason we had such a battle here is that many members of congress said that recent government spending has been too reckless, so they wanted to see significant changes before agreeing to raise the debt ceiling (and some didn't really want to raise it at all).

In any case, I agree with the people who have said that $16T is a completely absurd amount of debt. Who can blame credit rating agencies for the downgrade? Giving ourselves the ability to go even further into the red doesn't improve our ability to actually pay back the debt we currently hold (to get back into the black).

I think the worst part about this whole issue is that many of our fiscal policies over the past five years or so have been geared toward stalling away a true "depression" until after the next election. (Both parties are guilty of this, but the easiest example is the current one: just look at when the Treasury's borrowing needs will no longer be "satisfied.") In the meantime, the unemployment rate is still as high as it's been since the Great Depression, so all these little temporary projects that the government keeps undertaking and the one-year temp jobs that those projects have created (many of which expired quite some time ago) have made it so that neither the people nor the government can pay their bills in the long term.

For now, the debt's only growing larger, and the stalling can't continue forever. Once our nation's leaders lose the ability (or the desire) to continue this irresponsible stalling, a depression is almost inevitable. And the deeper we are in debt at that point -- in other words, the longer we've been stalling -- the worse that depression will be.

[Gavin Luper]

For now, the debt's only growing larger, and the stalling can't continue forever. Once our nation's leaders lose the ability (or the desire) to continue this irresponsible stalling, a depression is almost inevitable. And the deeper we are in debt at that point -- in other words, the longer we've been stalling -- the worse that depression will be.

This. Sadly.

When you're actually taking on more debt to pay your existing debts, you know that sooner or later you're going to be screwed, and basically you're just delaying the inevitable screw-up, and exacerbating how bad it will be, too.

On a microcosmic level, I see this with clients all the time: the ones who are increasing their credit card limit and then cash advancing constantly in order to have money for bills, rent, food, etc. are the ones who have overcommitted and, almost always, the ones who end up defaulting on everything a few months later.

It's a different beast entirely, of course, but the same basic idea applies to global economies, too. If the US doesn't have the funds to service a $14T debt, there's no good reason to suggest that they will have the funds to service an even greater $16T debt.

Nonetheless, raising the debt ceiling last week was obviously a no-brainer (default now and definite, immediate economic chaos results, or put it off and see what happens). But for this stall tactic to prove to be anything but a stall tactic, there would have to be massive cuts in govt spending and somehow a whole heap of revenue-raising. I don't have a huge understanding of economics so I don't know how they are going to do it, but hopefully they can pull something special out of thin air, otherwise I think we're in for a worse situation in the months and years ahead, and quite possibly the lurking prospect of a depression will feel more and more inevitable.

[Drago]

Will this affect the USD at all? I'm trying to hold off on changing my Australian money before my trip...

[mr_pikachu]

Will this affect the USD at all?

Yes.