The downgrading of the United States’ credit score after the recent debt-ceiling negotiations is just the tip of the iceberg of what’s to come.
In fact, there’s a predictable cascade of events that this situation cost us.
The question now is, can we turn the situation around, get back on a growth track, and avoid some of the negative effects?
First, let’s get to the real issue we’re dealing with. It’s called “indecision.” Leadership in Washington on both sides failed to come to a decisive conclusion on the raising of the debt ceiling—something that, historically, was quite easy. And even though it may seem that a decision was made, in reality it was an indecision that occurred—a decision to postpone the final answer and send it to a committee made up of people who fundamentally disagree with each other.
So instead of the problem being resolved, it’s still out there. That’s not leadership; it’s a huge injection of uncertainty, which results in increased risk. And that’s what Moody’s and the rest of the world is looking at—they see that our government isn’t dealing with the real issues and lacks true leadership when we need it most.
Everything that happens next is quite expected. The government’s credit rating was downgraded, which led to Freddie Mac and Fannie Mae being downgraded too. That means the interest on the U.S. debt goes up, which again increases uncertainty and risk. And since things are so interconnected financially, it’s easy to see those increased costs cascading all the way down to state governments, as well as to entrepreneurs and the U.S. people. What happens next? People worry (because of the ever-increasing uncertainty) and don’t spend, which puts us on track for anemic growth if not another recession.
Now here’s an important point to remember, and the starting point of how we fix this mess: How you see the future shapes how you act, and how you act shapes the future. So if you see the future as foreboding, uncertain, or less stable, you act differently than if you see it as exciting and full of opportunity. As such, the futureview of many right now is in line with seeing a negative future.
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