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DOWNGRADE OF CREDIT RATING.

Updated on August 8, 2011

Should it have happened?

Psychologically, the credit rating agencies, of Standard and Poor's, with Fitch Ratings and Moody's Investors Service in the background, have discovered that there was a "chink in the armor" of the United States Congressional system of government, when a small, minority of members could hold the administration hostage, by causing it to almost default in paying its mandatory and appropriations bills.

The agencies happened to be the sources of regulations in setting standards for individual countries, for example , to adhere to. In other words, those countries were held to stringent fiscal policies, and they were rated in accordance with the feasibility of those policies being followed to the letter by them.

The fiscal performance of all countries, governments, organizations or issuers, as they were normally called, were monitored, as it (performance) must fall in line and within the jurisdiction of the policies agreed to by these agencies with them (individual countries, governments or issuers).

The agencies, though not collectively acting as coordinators, served as conduits between their client entities or issuers, be they countries, governments or organizations, and the financial sector. Their oversight was essential for the smooth running of all financial transactions appertaining to those client entities or issuers, which also included monetary markets, as well as the overall global economies.

The objective of these agencies was to see that all financial systems worked in simpatico, or in synchronization, like clockwork, to ensure safety and stability in a worldwide fiscal environment.

In the financial world, those regulations were held strictly to a set of grades that ranged from AAA, AA+ through to D, to communicate any single agency's "opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time." (Unknown source).

Thus the refusal of following any part of the regulations would affect the level of credit and render the issuer almost hapless in raising funds to undertake vital obligations, such as, in the case of the U.S., to cover the cost of two wars in Iraq and Afghanistan, and also to require funding for internal civil and infrastructural projects. Their influence was binding in the world of financing.

What went on in Washington D.C. in recent months, in connection with the raising of the debt ceiling, was phenomenal; in that no U.S. government must be obstructed by any entity in honoring its debt obligations; but for the first time, it was held back by entrenchment on the part of Congressional Republicans in a debate that took place over several weeks; and so, it did weaken the government's ability to perform its assigned responsibilities, as it was constitutionally expected to do.

Eventually, it was able to come out of a deadlock stemming from the debate, and only short of a default to its principal debtors, by the raising of the debt limit in the nick of time.

By then, the government was already in trouble, due to the amount of precious time the protracted talks and meetings had taken. The process of reaching a compromise with Congressional Republicans had consumed so much time and energy, as efforts have been wasted on less imminent matters; and so, the long delay would send jitters through the financial world.

It (government) went over the hurdle of default; otherwise the consequences would have been more catastrophic than it was presently.

However, those were the prevailing circumstances that were prompting the U.S. government to shut down; and they could also have caused the stock market to crash. For there was so much confusion coming out of Washington, and the world markets were in an askance situation.

Hence, in many minds, the rating agency of Standard and Poor's decision to step in and downgrade the credit rating of the U.S. for the first time in history (since 1917), as "a warning shot across the bow" of Congress.

It might have assumed that would help both sides of the issue, the Democratic Party government and the Republican Party opposition, to simmer down and reconsider the consequences and the outcome of the destructive path the country was following to deal with its economic problems.

Most Americans were saying that the company was, somehow, indicating that the bickering between the two parties would not be a panacea to resolve their grievances. That could be true or false, but who could tell, It happened anyway.

However, the wonder of it all was the Fourth Estate, or the media, as it was now known, being mum in finding the analytical cause of the economic crisis that the nation was embroiled in.

Their analysts and news contributors had mentioned everything that could cause the problem, except the intimidation perpetrated on the Obama government by the Republican Party, which permitted its members of the so called Tea Party to gain the upper hand in the debate.

They were against the raising of the debt ceiling; and though, the choice was for raising it, but they came up with plans to delay the process, like the "Cut, Cap and Balance" bill that failed to pass through Congress.

The obvious answer was to choose "for" and not "against"; but they had always chosen the latter in every aspect of the talks to reach an agreement.

They would continue to pursue a unilateral political posture, and to rail against the idea of the debt ceiling being raised, by making the cuts in social services as part of the huge deficit reduction they were demanding the government to make. That, unfortunately, became the sticking point in the ensuing argument. They would have "their way or the highway".

The country was firmly in the throes of political war, and the media would not try to investigate its origins as they usually did, and as their profession required. They were fishing for friendship in all kinds of places, except on Capitol Hill, where it mattered most, to find the culprit of such an atrocious happenstance that has placed the country under so much pressure. What a shame!

Finally, President Barack Obama was able to sign what many regarded as a tentative bill passed by Congress into law, to bring things under control; a committee system of six members of each party has been structured into the legislation to deal in detail with the deficit reduction requirements of it (bill) in the future.

Yet, the stock market and other financial establishments had become skeptical even after that, as the Dow Jones Averages fell by 500+ points in just one day. That was Thursday of last week, and the news of the downgrade of the U.S. credit rating had not broken as yet.

However, let us hope that the markets would not go giddy up on Monday, August 8th, and force traders to react negatively. For if the markets went haywire, so would the fragile economy.

We pray they wouldn't.

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