So S&P, one of the rating agencies that fuelled the bubble and bust, has downgraded US credit rating. Its about time. Not that the US isn’t wonderful, but its economic profligacy expanded to new levels in the last decade and the culture is becoming one of gratuitous consumption at the cost of future earnings.
The king’s new clothes are not his and finally one of the courtiers has drawn attention to the fact. Everyone is dressed in robes they can not afford – the king’s new clothes are owned by someone else (China and other lenders to the US) and the king’s coffers are empty.
Recognising the reality of consumption, debt, productivity and earnings is a step in the right direction. It is a good thing. It is good that the rating agency is doing its job. It’s good that our delusion is being revealed. It might be uncomfortable, but the sooner it happens the sooner we can fix the problem and change our behaviour.
August is usually a volatile month with low trading volumes so let’s see what happens in September when bankers get back to “work”.