Are you ready for part two of the global financial collapse? Many now fear that we may be on the verge of a repeat of 2008 after the events of the last several days. On Friday, Standard & Poor’s stripped the U.S. government of its AAA credit rating for the first time in history. World financial markets had been anticipating a potential downgrade, but that still didn’t stop panic from ensuing as this week began. On Monday, the Dow Jones Industrial Average dropped 634.76 points, which represented a 5.5 percent plunge. It was the largest one day point decline and the largest one day percentage decline since December 1, 2008. Overall, stocks have fallen by about 15 percent over the past two weeks. When Standard & Poor’s downgraded long-term U.S. government debt from AAA to AA+, it was just one more indication that faith in the U.S. financial system is faltering. Previously, U.S. government debt had a AAA rating from S&P continuously since 1941, but now that streak is over. Nobody is quite sure what comes next. We truly are in unprecedented territory. But one thing is for sure – there is a lot of fear in the air right now.
So exactly what caused S&P to downgrade U.S. government debt?
Well, it was the debt ceiling deal that broke the camel’s back.
According to S&P, the debt ceiling deal “falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”