Last 2 days, every news channel showing only one major news under "Breaking News" – S&P cuts rating for USA. All right, but what does it mean to a common man anywhere in the world. Is it interfering my investments or my lifestyle? Let’s try to find out in simple manner.
The debt ceiling is a cap on the amount of debt the federal government can legally borrow set by Congress. Imagine if you stopped paying your credit cards bills or your car payments; you would ruin your credit rating and your car would be repossessed. The same thing happens with countries that default on their debt. Put simply, if Congress does not raise the debt ceiling then China, Japan, OPEC, and others will stop giving us low-interest loans. Foreigners will pull money out of the U.S. and the dollar will drop. In the end, this means that our cost of living will rise substantially.
Remember, S&P ratings is not a "guarantee" but a "suggestion" to fellow investors and / or banks and countries.
The short term effect of the re-rating will surely put down stock markets across the world – especially where technical charts are already weak like DowJones, Sensex and other European indices. See my existing post where I’ve explained weakness of technical chart of DowJones. This will also act as warning to President Obama to cut major expenses of country like wars, giving aid to Pakistan, which ultimately passes to terrorist and then starting another war. This puts in infinite chain reaction of expenses. Osama Bin laden living in "high security" area of Pakistan is a proof of this statement. Now, USA president has to act practically for the welfare of USA citizens and stop acting as diplomatically.
Now, what to do? Just forget this rating chapter and leave for people like to comment. I think the coming days will give you opportunity for better investments in stock market. Remember, the golden rule – Buy when everyone is selling and Sell when everyone is buying. Sit on cash and watch the technical charts carefully and start investing as soon it takes U turn. There are many good & tested technical indicators available on this website for you.
And finally, see what President Obama has to say on all this