Down to AA+
Aug. 6th, 2011 01:34 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
snowywolfowlSo the US credit rating has been downgraded to AA+ from AAA.
Wow.
This is not good, to the say the least. I can't say I'm really surprised considering that the entire US government was pretty much paralyzed by the debate. If I had to explain this in one sentence it would be that Washington's antics ultimately damaged the idea that one can trust the full faith and credit of the American financial system.
Obviously I'm not happy about this. Not only would I hate to think of friends and family having to go through hard times but Canada's economy, while diversified, is tightly integrated into the US economy. America buys our natural gas, our lumber, our ores, our wheat and a whole host of other things. If people aren't making things, they aren't buying materials.
So, what do I think will happen? Well, like it or lump it the Bush tax cuts are going to have to go. America can (and will have to) make serious cuts in areas like entitlement and defence spending but there is only so much one can cut. At some point revenue increases will have to factor in. Serious financial reform, the type that should have followed the Wall Street bailout a couple of years back, will also be needed since the US can't afford a re-run of that. And finally, the political climate will need to see the election of more moderates who are willing to play across the aisles instead of just to the base. There will be no easy solutions or choices but if that just leads to the same type of deadlock the US might end up going down again in the ratings.
This of course is not a doom and gloom post though. Historically, one can come back. Canada was downgraded similarily a few years back and as a result of some at times painful cuts, well thought out taxes (ok, arguably well thought out), and prescient financial regulation we came back to AAA. If the US can figure out a solution that works for them they'll come back too.
Time will tell.
Wow.
This is not good, to the say the least. I can't say I'm really surprised considering that the entire US government was pretty much paralyzed by the debate. If I had to explain this in one sentence it would be that Washington's antics ultimately damaged the idea that one can trust the full faith and credit of the American financial system.
Obviously I'm not happy about this. Not only would I hate to think of friends and family having to go through hard times but Canada's economy, while diversified, is tightly integrated into the US economy. America buys our natural gas, our lumber, our ores, our wheat and a whole host of other things. If people aren't making things, they aren't buying materials.
So, what do I think will happen? Well, like it or lump it the Bush tax cuts are going to have to go. America can (and will have to) make serious cuts in areas like entitlement and defence spending but there is only so much one can cut. At some point revenue increases will have to factor in. Serious financial reform, the type that should have followed the Wall Street bailout a couple of years back, will also be needed since the US can't afford a re-run of that. And finally, the political climate will need to see the election of more moderates who are willing to play across the aisles instead of just to the base. There will be no easy solutions or choices but if that just leads to the same type of deadlock the US might end up going down again in the ratings.
This of course is not a doom and gloom post though. Historically, one can come back. Canada was downgraded similarily a few years back and as a result of some at times painful cuts, well thought out taxes (ok, arguably well thought out), and prescient financial regulation we came back to AAA. If the US can figure out a solution that works for them they'll come back too.
Time will tell.
