The Return of
The Only President in History
to Get a Credit Downgrade
Has Two Downgrades Now
Update - September 19, 2012
It's happening again. For the second time since he took office, President Obama has presided over the credit-rating downgrade of the United States. Credit rating firm Egan-Jones has downgraded its rating of U.S. government debt from AA to AA-, following the Federal Reserve’s recent announcement that it was planning yet a third round of stimulus spending -- an open-ended plan to buy $40 billion worth of mortgage debt a month.
While Obama has generously awarded himself a “solid B+” after his first 11 months in office, news of this new downgrade has surely earned him at best an “incomplete” -- and reinforced the nickname “President Downgrade.”
How does this affect you? Read on:
1. Uncle Sam’s interest rate may rise.
Credit downgrades by definition are a sign of a lack of confidence in a government's ability to pay its debts. The riskier a country is to lend money to, the higher the rate of interest it must pay – as with consumers, so too with countries. When the country with the best credit rating in the world gets a downgrade, that's a big deal.
2. If your government pays more, you pay more.
The interest rate the U.S. pays for short-term loans is tied directly to the prevailing rate in the Treasury bill market. A downgrade will likely force yields on bonds higher, thereby forcing the government to spend more to borrow the same amount of money. Since consumer loans, such as credit cards and mortgages, are tied to T-bills, their interest rates will rise too.
3. College and car loans.
If you want a loan for a new car or for college tuition, brace yourself for higher rates. If your credit card or home equity loan has a variable interest rate, it's most likely tied to the Treasury bill market. Check the fine print in your monthly statement.
4. What’s the worst-case scenario for me?
The downgrade could force some homeowners to default on part of their mortgages, potentially deepening the housing crisis. In economic boom times many people finance their homes with both a standard mortgage and a special home equity line of credit. HELOCS require borrowers to pay only the interest on the loan, with the rate changing from month to month. If Treasury bills become more expensive because of the downgrade, some homeowners, depending on how (over)extended they are, might be pushed into default.
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Standard & Poors' downgrade of our country's credit rating may end up being the defining event of the Obama Administration – bigger than his blackness, bigger than Obamacare. To some, the difference between AAA and AA+ may seem overblown, but as the juggernaut and erstwhile standard-bearer of the global economy, the United States has taken an enormous hit, both symbolically and economically, from S&P.
When President Obama spoke of hope and change and fundamental transformation to those adoring crowds in 2008, how many people imagined just what it was that Obama's policies would lead to? How many people in those joyous throngs are unemployed or underemployed now, or suffering in some other way, spiritually or otherwise, in the declining America Obama has brought us?
Obama and his Democrat cohorts have spent like a drunken Navy on permanent shore leave. As bad as deficit spending was under President Bush, Barack Obama has far outpaced him in terms of sheer destructive profligacy, digging us a hole 350% deeper than that of his predecessor.
The nation that vanquished Nazism, that faced down Soviet communism, that promoted democracy and offered a free and prosperous home to 300 million of its citizens, has found itself badly damaged and diminished under President Downgrade.
Soon after assuming office in 2009, President Downgrade began his Global Apology Tour. He told the French that the U.S. "has shown arrogance and been dismissive, even derisive," toward its European brethren. His representatives have apologized for the Americans' lawful passage of border protection measures in Arizona. He has curtsied and bowed and declared himself simpatico to an unseemly parade of tyrants and thugs around the world. Americans should not have been overly surprised; even during the campaign, Candidate Downgrade spoke deprecatingly of his homeland in the empty, gaseous pronouncements of his Berlin speech.
President Downgrade also looks askance at the Constitution, particularly at its emphasis on limiting the power and scope of government. The Constitution, which he has sworn an oath to uphold, is actually an obstacle to President Downgrade – though our political culture has not yet deteriorated to the point where he feels free to speak openly about it.
President Downgrade has long endeavored to downgrade the importance of human life. Three separate times in his political career he has voted against the unborn, up to and including advocating in favor of taking the lives of babies who have survived botched late-term abortions. Even as he declares such matters as "above my pay grade", he favors taxpayer subsidies for them.
He has sullied the White House by throwing its doors open to rappers and representatives from cultures openly hostile to us. His "Justice Department" has downgraded race relations by refusing to pursue legal action against nightstick wielding black nationalists who intimidate white voters.
Come 2012 we are confident the electorate will vote to upgrade the White House by rejecting President Downgrade. But it will take quite a bit longer to restore the broader luster of the culture. At least we are cognizant that such a restoration is needed. The first step in solving any problem is acknowledging its existence.
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