NO 845 WHY AMERICA'S CREDIT RATING WAS DOWNGRADED!

No. 845

Jim Davidson -- NEWSPAPER COLUMN

WHY AMERICA’S CREDIT RATING WAS DOWNGRADED

For more than 70 years, the United States has enjoyed the highest credit rating given by Standard and Poor’s, the world’s most highly esteemed credit rating agency. But this is no longer the case. In August 2011, this changed when our nation was downgraded from an “AAA” rating to the next lowest level “AA+.” Most Americans will give this very little thought, but it has serious implications for anyone looking to borrow money. The downgrade in rating means that we are a greater risk for defaulting on our loans and this means higher interest rates, which over time filters down to every level of our society.
According to David Beers, head of S&P’s government rating unit, “It’s possible the rating will come back, but we don’t think it’s coming back any time soon.” Now, let me pause here and say just for the record, I am not an economist and there are thousands of people in our nation who know a lot more about it than I do. The reason I wanted to share this is because a friend sent me something the other day that makes it very easy to understand for the average layman like me. Of course when you talk about finances and debt, you are always taking a “snapshot” in time, as it’s very fluid and always changing. Think about this in terms of your own personal finances and it will be much easier to see and understand. And to be sure, it does affect you whether you realize it or not.
Here we go, and try to not get dizzy because of the zeroes. The title is simply, “Why the US was downgraded.”

U.S. Tax revenue: $2,170,000,000,000.
Federal Budget: $3,820,000,000,000.
New Debt: $1,650,000,000,000.
National Debt: $14,271,000,000,000. (It’s over 15 trillion now)
Recent budget cut: $38,500,000,000

Now, let’s remove 8 zeroes and pretend it’s a household budget:

Annual family income: $21,700.
Money the family spent: $38,200.
New debt on credit card: $16,500.
Outstanding balance on credit card: $142,710.
Total budget cuts: $385.

To my way of thinking, this is a pretty good way to visualize the sad state of our nation’s finances and why we were downgraded by Standard & Poor’s. This is also the battle that is taking place in the U.S. Congress each and every day. Most members of Congress don’t have any backbone and do not want to cut anything, but rather spend even more if they think it will help get them reelected. The big question is simply this, will we get a handle on our nation’s debt or will it destroy us?
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(EDITOR'S NOTE: Jim Davidson is a public speaker and syndicated columnist. You may contact him at 2 Bentley Drive, Conway, AR 72034. To begin a bookcase literacy project visit www.bookcaseforeverychild.com. You won’t go wrong helping a needy child.)