The Effects of the Downgrade

By now, you’ve no doubt heard that Standard &
Poor’s has downgraded the U.S. credit rating one notch.

Let’s first understand that this downgrade is more a political statement
than a financial one. And it’s not likely to affect U.S. Treasury yields
much.

I think we all agree that the level of debt the U.S. has taken on is not
sustainable. Spending cuts are necessary, and that will need to include the
so-called entitlement programs.

Debt Deal Done: Will the U.S. Get Downgraded?

Well, well. Congress did it. And more than a full
day ahead of Treasury Secretary Geithner’s absolute deadline on Tuesday,
August 2. I will admit, I’m surprised. Not that they reached a deal —
after all, I playfully wagered my entire business that a deal would get
done with High Yield
Wealth
editor Steve Mausy. But I figured it would be a
midnight deal.

Of course, nothing is signed, sealed and delivered just yet. I expect that
may not happen until this evening. But the rhetoric from Congressional
leaders and the president suggest the signatures are a
formality.

Who’s Regulating the Regulators?

I’ve spent most of this week railing about Congress’ inability to
realistically deal with 2011 budget and the looming collision between
government spending and the debt ceiling.

The situation is made significantly worse by the threat of a debt rating
downgrade. A debt downgrade would raise borrowing costs by $100 billion a
year as Treasury bond prices fall and interest rates rise. That, in turn,
would make home and auto loans more expensive.

That’s clearly not the best outcome…