The U.S. debt ceiling "deal" wasn't sufficient to stop Standard and Poors from downgrading the U.S.
Currently, we are faced with a stalled economy, a debt crisis in the U.S., a European sovereign debt crisis, political dysfunction in the U.S. and Europe and "The Downgrade."
This is all coming on the heels of the worst economic crisis in the U.S. since the Great Depression.
So, what does it mean? What will it mean for the economy, the markets, and our future?
In the U.S., is it the fall of the Roman Empire or will our anemic growth pick up steam and help us out of the economic doldrums? As we head into the the second week of August 2011, and vacations are about to begin, here are five questions to consider.
No. 1. Does the Downgrade Matter? Yes it does. A lot of very smart people say it doesn't. They point to France, which is triple-A (although it shouldn't be), and ask, "Is France really a better credit risk than the U.S.?" I don't think this is the right question. The right question is, "How did we let this happen?" We are the United States of America. We are supposed to have the strongest economy in the world. We are not supposed to find ourselves in a position where people are unsure as to whether we will always be in a position to pay our debts when they become due. Also, if the downgrade doesn't matter, why is the Obama administration reacting so harshly to it? If it was really a mistake or a poor decision by Standard and Poor's, wouldn't we all realize that? Of course we would. What the downgrade really tells us is that we are in a fiscal and political crisis, and we need serious answers to serious problems before it is too late.
No. 2. Does China matter? Of course it does. While China has not commented officially on "The Downgrade," China's official news agency, Xinhau, said that the U.S. needs to “cure its addiction to debts” and “live within its means.”China, the largest holder of our debt, cares deeply about the U.S. debt crisis and "The Downgrade," as it needs to protect the value of its holdings. In other words, China is laser-focused on any events that could lower the value of those holdings. Guan Jianzhong, chairman of Dagong Global Credit Rating, said that the U.S. dollar may be discarded as the the currency of the world. These comments are shots across the bow of the U.S. and our political leaders need to take them seriously. We need to focus on how to keep the dollar strong, get our debt problem under control, and position the country to grow over the long term.