WASHINGTON (AP) -- The United States has lost its sterling credit rating from Standard & Poor's. The credit rating agency on Friday lowered the nation's AAA rating for the first time since granting it in 1917. The move came less than a week after a gridlocked Congress finally agreed to spending cuts that would reduce the debt by more than $2 trillion -- a tumultuous process that contributed to convulsions in financial markets. The promised cuts were not enough to satisfy S&P.
http://finance.yahoo.com/news/SampP-downgrades-US-credit-apf-2107320979.html
Nixon closed the gold window in 1971 thereby severing the government's tether to any resemblance of fiscal sanity. It was gold that restrained the government's ability to spend more than it collected in revenues via taxation. With the international gold settlement system abandoned in favor of a pure fiat system backed solely by hot air and promises, the government was free to expand its size exponentially and it only could have done so because of its status as issuer of the world's reserve currency.
The move by Standard and Poor's to downgrade US credit from AAA to AA+ is a seminal and historic event. Decades in the making, Congress and the previous administrations believed they could simply borrow and spend like druken sailors and push the ramifications of that wrecklessness onto the backs of future generations. Well, that future generation has arrived and it's US!
The downgrade is such a big deal because it calls into question the entire foundation of the world economy. Why the heck should the world store their wealth in dollars via treasuries if the government is not capable of paying it back? The answer is they shouldn't. This move by S&P should have been made years ago and it should come as no surprise to any seasoned gold investor that this move was coming.
The largest holder of US national debt outside of the Federal Reserve, whom is the #1 holder of US debt by the way, is China. China has been diversifying out of US debt the last few years and buying every commodity they can get their hands on. This de facto default by the US in its failure to maintain its fiscal responsibilities have also led the Chinese to start doing bilateral trade with certain nations in the Renminbi and not the dollar. Some of those nations include Turkey, Russia, Brazil, Malaysia and other neighboring Asian nations. China is taking baby steps with their currency with the ambition of having it replace the dollar in world trade.
What should be remembered is that as the debt continues to mount in the United States, gold will continue to exert itself as the true world's reserve currency. As the EU cracks up and the US "borrows" more from the Federal Reserve and leeches off the productivity of fiscally sound nations like China, the US population will continue to become poorer. We're on the path to banana republic status and the only thing keeping this afloat is confidence in the dollar. And remember that confidence in US debt is confidence in the dollar- they are inextricably linked. S&P's shot across the bow has now officially shaken that confidence. Folks, continue to hold onto your gold and silver as they will reassert themselves as the world's money once again as soon as the dust settles on the worldwide financial collapse.
Before I conclude this post, I wanted to mention that GATA's conference in London is in its last day today and if you haven't had an opportunity to attend, GATA will eventually be selling dvds of the event on their website. This will be something worth getting. The list of speakers at Gold Rush 2011 are some of the brightest in the world and include: Bill Murphy, Chris Powell, Eric Sprott, John Embry, Jim Sinclair, James Turk, Hugo Salinas Price, Reginal Howe, Brian Hinchcliffe, John Brimelow, Peter George, Jeff Dahl, Peter Grandich, James Rickards, Andrew Maguire, Ben Davies, Adrian Douglas, Ned Naylor-Leyland, Alasdair Macleod, Ed Steer, James McShirley, and Thom Calandra.
We wish all GATA attendees safe passage home as they leave the "belly of the beast."