Anyway, so today Standard and Poor's put the United States government on notice that its run away spending has not gone unnoticed. By cutting the USA's credit outlook to negative, S&P basically stated that they think the USA has a 1 in 3 chance of being downgraded (credit wise) in the future. This means that if the USA can borrow at a hypothetical 3% today with its AAA rating, in the future, that interest rate may climb to a hypothetical 3.5%, all things being equal. This doesn't sound like much of a difference, but multiply those additional 50 basis points by trillions of dollars of debt and you begin talking about real money.
What I find fascinating is that the cost of insuring US debt rose to ~95 basis points. Who is selling this insurance? AIG ;). Who is buying? If you need to cash in on this insurance, there is nobody on earth who can honor these CDS agreements. You see, if the US government defaults ("all" US government debt is priced in US dollars that the US government can print at will), then the world has crashed and paper slips and electronic blips will mean nothing. I'm exaggerating slightly, but only slightly. I guess the tin foil hat crowd could be right and we do have aliens among us. The aliens could sell the insurance and honor the agreements since their economic system should be uncorrelated to the earths finances. But, that assumes that they haven't been here long enough to become fully invested in the US / Greece / Japan / Ireland / Portugal / Spain / England / France / etc. by buying the massive amounts of debt that have spilled off the printers machines. Kang and Kodos, I beseech thee to forgive our mis-spending ways and allow us three cups of drool instead of two. All hail our Rigellian overlords. VOTE KODOS!!!!
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