Saturday, August 6, 2011
S&P downgrade not a surprise
S&P back in April stated that unless the U.S. put in place cuts that amounted to at least $4 trillion, they would downgrade. They followed-through after the government only put in place $2.1 trillion in cuts over 10 years, most of which will not come within the next 5 years. We can certainly argue with their reasoning and their timing, but the reality is that $2.1 trillion over 10 years is a drop in the bucket, and is far short of what is needed to contain the ever-expanding national debt. We need to balance the budget so we can generate a surplus to pay down the national debt to a more reasonable level, far below 100% of GDP. My concern is that, unless we do something more significant now, we are going to be forced to do something drastic in the near future, that could crush the economy. With this said, I feel that the downgrade was already baked in the cake, so we shouldn't see too much of a reaction this coming week. Fitch and Moody's still have us at AAA, although they are both still evaluating us. We lost 7% on stocks this past week, and globally, $2.5 trillion in stock value was erased. I think it's time for a rebound, but longer-term, we will have an overhang from the debt problems we face.