The stock market is a funny animal. Something could be dangling it front of its nose for months, but it pays no attention to it. Suddenly, something happens and it is front and center and people get all excited. This is certainly the case with the ominous debt situation facing this country. The market went up daily with no resistance, with the mountainous debt in the background, but that changed yesterday.
Standard & Poors Ratings Service downgraded the long-term debt of the U.S. to “Negative” from “Stable” and said there is a 33% chance that America could lose its top investment rating on the debt over the next two years. This is extremely serious and needs to be taken seriously right now because our country could be looking at dramatically higher interest rates on that huge debt.
The extremely partisan nature of our government will make any improvements in our debt picture very difficult in my opinion. It was like pulling teeth just to get $38 billion in spending cuts, and that is like a grain of sand on the beach in terms of the overall debt picture. The prospect for making meaningful inroads into the debt is dim at best.
It is scary to ponder the consequences of our huge debt and rising interest costs. China owns huge swaths of our debt and if they start selling en masse, things could get ugly quickly. It’s hard not to be worried about this situation, but our government can make a difference. Our entitlements and defense spending must be on the table for potential spending cuts. These are considered to be off the table for many, but no meaningful reduction in the debt can occur without some cuts in these areas.
The debt problem is finally in the forefront of the market’s mind, and we will see how far it takes it. I don’t think it’s a reason to panic sell all of your stocks, but on the other extreme, it is not something to ignore completely either. If anything, this downgrade and the market’s reaction is a wake up call to our bickering government to stop fighting and actually accomplish something for once.
The Market Is Finally Paying Attention To This is an article from: 
