As by now everybody knows that the U.S. government has been downgraded one notch below by one of the big three rating agencies. And this has started finger pointing by the politicians, economists, rating agencies and anybody in between. It was not surprising nor it was unexpected but the initial shock is still being absorbed by the financial markets around the world. As I have been saying all along in my numerous posts, that unless we keep our fiscal house in order and reduce our expenditure drastically, there are bound to be more downgrades to come. This downgrade would have a ripple effect throughout the U.S. economy with the ratings of numerous municipalities and government agencies downgraded and also interest rates on mortgages and other loans going up.
Well how do we raise our ratings again to the top level? Not surprisingly I read an article detailing the same thing. But to do that we need both the bickering parties to regain some sanity and come up with a compromise to a solution so that the expenditures should be cut and taxes (unfortunately) be raised with exemptions, deductions and/or exclusions reduced to a barest minimum. The entitlements should be drastically reduced (since we are living in a quite different world now) and lastly our defense budget should be reduced to reflect the new financial reality and not based upon our perceived status as a Superpower. In this case, like a patient we need tough love and shock treatment.