I advise everyone to pay close attention to the economic news over the next several days. From the reading I have been doing over the past 24 hours, the S&P downgrade of the government’s credit rating has the potential to be just the first of several hammer blows to the economy over the next week. This news is coupled with drastically rising wholesale inflation numbers, significantly rising commodity prices, the specter of rising interest rates, and the potential that S&P may only be the first to downgrade.
The potential outcome of this toxic brew of circumstances is that it could trigger yet another recession (or the second dip if the existing recession). This potential becomes most threatening in that a second recession will further reduce the revenue being collected by the federal government, increasing the size of the deficits at current spending levels just at the time when it became harder for the government to borrow money because of higher interest rates and more credit restraints. In the most extreme circumstance, the government may find itself unable to borrow sufficient amounts, forcing it to defund or reduce funding on programs in mid cycle.
Be ready before it is too late.