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Sunday, August 7, 2011 - What Does Downgrade Mean for Stocks? - What Does Downgrade Mean for Stocks?

"The meaning of this downgrade is that the agency does not believe our government can repay its debt. The agency has good reason to feel this way since our politicians seemingly could not get this deal completed, and were not happy with the end result. Analysts estimate that the new rating will cost our government an additional $100 billion annually. Citizens have voiced their concerns, saying this could lead to higher interest rates, including rates for such items as mortgages and college.
I expect treasury bond investments to decrease during the short term as confidence within our nation is at an all time low. In addition to investor confidence I believe this change could affect consumer confidence. Consumers are not confident in our nation or their job security and as a result will spend less.
In the end politicians' individual agendas prevented them from dealing with the issue of the debt ceiling in a proper way. They could have handled this problem much better and developed a plan that is attainable. We can not change what has happened. We can only try and move forward. We held this rating for much longer than we deserved. It would be equivalent to an American citizen with $500,000 in debt trying to get a $100,000 loan on $75,000 of income. While that is a metaphor it somewhat describes our government's situation except our government does not make payments on its debt."

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