Business

Obama: Be careful what you ask for

It’s funny, in a sadly ironic sort of way, that the politicians got what they wanted. Standard & Poor’s is now doing its job.

The credit watchdog late Friday night lowered the rating on U.S. government debt from AAA to AA+.

Nobody in Washington is laughing, of course, since the move will not only make it more costly for our government to borrow money but it will also hurt everyone else — consumers, students, municipalities and companies — when they look for loans.

Interest rates are all tied together. If Washington has to pay more to borrow, so will you.

That’s where the spiral could begin.

The higher cost of borrowing will completely shut some folks out. And if companies, let’s say, can’t afford to borrow at increased rates then they won’t be able to expand, or even keep their current operations going at the same level.

Consumers might hold back on purchases because of credit card sticker shock, then the companies that make those un-purchased products would also backtrack.

All of that means that our economy, which is already verging on another recession, could slow some more. That’s when the spiral could really begin: that slowdown, in turn will lead to less tax revenue for Washington, which will cause the federal deficit to increase, which will force the feds to need more borrowed money at higher and higher rates.

It’s gloomy. And there’s a chance it might not happen, at least not with just S&P downgrading US government debt. But Friday’s action has the potential for being a very bad situation.

Now I’ll get back to the funny part.

Right before the 2008 election, President Obama said he’d put the credit rating agencies like S&P under federal oversight if he became President. Why?

Because S&P, Fitch and Moody’s had not done their job when it came to policing the mortgages that Wall Street had bundled into securities and sold to the public.

So it must have been rather humorous when the President and his henchmen spent most of Friday begging S&P not to take from the US the highest rating available.

Is there good news in any of this?

Sure, and it’s the fact that the US’s situation right now — even with the downgrade — may not be as bad as Europe’s.

So foreign investors could still send their money here (and keep rates lower than they would be) even if S&P is saying our country is a little less safe than it was a week ago.

The US may not be particularly attractive right now. But it’s also not yet the ugliest girl in the bar.