The Downgrade Explained

Posted on August 11, 2011


Perhaps you’ve heard the United States credit rating was dropped from AAA to AA+ by the rating agency Standard & Poors.  This downgrade means the US will have to offer higher rates when it issues bonds and will increase the interest the US will pay to creditors over time.  International investors will no longer consider US treasuries as the undisputed safest investment and when America goes out to dinner with other countries and pretends to forget its wallet, China won’t offer to pick up the tab when the US says, “You countries know I’m good for it.”

This perfect credit rating equaled respect, and the US could previously walk into any bank and name its terms for borrowing.  Now the US will be increasingly forced to seek loans under the same humiliating circumstances as the rest of us.

When America sits down at a bank and applies for a loan, it will have to shave, shower, and put on a suit first instead of arriving hungover in a t-shirt, jeans, sandals and checking text messages throughout the application interview.

Lenders will ask tougher questions about the safety and potential future value of their investment.  If told the money will be used to pay for education and a theoretical investment in our children’s future, the lenders are likely to point out America wouldn’t be in this mess if previous investments in our children’s future had panned out.

The US will be required to supply a co-signer like China.  If America doesn’t pay back the money, and China is required to pay our debt, America will have to stop eating at Chinese restaurants out of fear it will receive fortune cookies warning: He who does not pay back 1 trillion by midnight shall have Hawaii cut off.

Lenders will ask whether the US is doing everything possible to maximize income and may suggest the US take a side job waiting tables on the weekend. 

The US must offer multiple credit references, and it might prove difficult to find three countries the US doesn’t owe heaps of money.

The US may be asked to provide collateral, meaning money to buy weapons will be easier to secure because the weapons are a physical asset.  Borrowing money to pay Medicare expenses will be more difficult because the health of the elderly rarely appreciates over time, and even if it did, it can’t easily be sold at a police auction.

Here’s the good news:

When our aged relatives tell the same story for the thousandth time about times being tough when they were a kid, we’ll get to interrupt them and say, “Now it’s my turn to talk because I’ve got me some tough times of my own.”