Austin Hill
The U.S. Federal Reserve initiated more economic stimulus. And the very next day the U.S. Government received another debt downgrade.

Did one lead to the other- or is there more to the story?

Amid last week’s headlines of Islamic terrorist attacks and domestic bomb threats, the news about another U.S. debt downgrade may have seemed anticlimactic. Yet this additional downgrade for the U.S. has been a long time in the making, has long-term ramifications, and was not triggered by the Federal Reserve alone.

After months of speculation, pressure, and mostly bad economic data, Federal Reserve Chairman Ben Bernanke announced last Thursday that he would launch a third round of economic stimulus code-named “QE3” (several media outlets, including CNBC and Yahoo! Finance, quickly nicknamed it “QE infinity” owing to its open-ended, no-end-in-sight nature). The plan, as Mr. Bernanke explained, is for the Federal Reserve to purchase $40 billion worth of mortgage-backed securities every month, and to do so for as long as he thinks it is necessary.

Of course, it was only five months ago that the Egan-Jones Ratings company downgraded the U.S. Government because of its profligate spending and total lack of interest in reducing its deficits, lowering it from a ”AA+” to a “AA” rating. After last week’s announcement about even more deficit spending by the Federal Reserve, our government continued its downward spiral on credit-worthiness by achieving Egan-Jones ‘ latest evaluation: a rating of “AA-.” Each of the other major credit ratings companies (Moody’s, Fitch, and Standard & Poor) gives the U.S. a slightly better rating, yet all of them forecast negative outlook” for our government’s credit worthiness.

In making its downgrade announcement, Egan-Jones stated that our government’s decision to issue more currency and to artificially depress interest rates by purchasing mortgage-backed securities will likely do very little to expand America’s actual gross domestic product, yet at the same time it will likely reduce the value of the dollar. The agency further noted that this decision will increase the cost of commodities, which in turn will hurt the profitability of businesses, and will increase the prices of consumer products thereby reducing consumer purchasing power.


Austin Hill

Austin Hill is an Author, Consultant, and Host of "Austin Hill's Big World of Small Business," a syndicated talk show about small business ownership and entrepreneurship. He is Co-Author of the new release "The Virtues Of Capitalism: A Moral Case For Free Markets." , Author of "White House Confidential: The Little Book Of Weird Presidential History," and a frequent guest host for Washington, DC's 105.9 WMAL Talk Radio.