…just went down – again. Yup, it’s unanimous that S&P, Fitch and now Moody’s have downgraded US debt. The effect is no different than your FICO score – your cost of borrowing goes up and you have fewer lenders willing to finance your house or car and give you a credit card and the same will happen to the good old USA.
What this also means is certain investors must sell their investment in US Treasury bonds – they promised their customers a certain credit rating, e.g. AAA and the US of A can no longer meet that test.
Seriously, if the M2 Money Supply is ~ $22 Trillion, that’s somewhere between 5.9% and 10.5% of the total money supply flooding the market and since that’s cash, as a percentage of actual bank notes in circulation is massively higher but who’s counting? Well, I am ‘cuz it’s gonna mean your dollar and mine will be worth less…less at home and much less in global trade and I’m not even talking about tariffs.
And, dear readers, since you come here to learn a bit more about finance, let’s ask Jamie Dimon, Chairman of the Board and Chief Executive Officer (CEO) of JPMorgan Chase & Co., a bank with a mere $4.36 Trillion in assets what he thinks is coming:
For you and me, finding the capital for our cities and counties, schools and hospitals, roads and sewers, business women & men and on and on it will mean tighter credit standards and higher rates. After all, there’s really no other result is there?
I am not trying to be a gloomy Gus with due apologies to all the Gus’ out there, with my favorite being Gus Grissom of the original Mercury Seven, (a dang fine group of fella’s including Scott Carpenter – U.S. Navy, Gordon Cooper – U.S. Air Force, John Glenn – U.S. Marine Corps (first American to orbit Earth), Gus Grissom – U.S. Air Force (second American in space), Wally Schirra – U.S. Navy (only astronaut to fly in Mercury, Gemini, and Apollo programs), Alan Shepard – U.S. Navy (first American in space; later walked on the Moon during Apollo 14) and Deke Slayton), my advice is be prepared: Pay down your personal and business debts if you can, finance what you need today with rates a known quantity and from a fine person from way back in 480 BCE:
“Success depends upon previous preparation, and without such preparation there is sure to be failure.”
— Confucius