(1) On one hand, the last few days of financial news aren't THAT bad...after all...the 10 year performance of the market helps sooth the panic over "omg, how far have things fallen"...Check out the 10-year or 20-year trajectory on Google Finance. As bad as things have been recently, things aren't THAT bad if you take a 10 or 20 year view.
(2) On the other, hand, today's blips are a symptom of the bigger problem...that we spend more than we sell. In business we call it profit & loss. In international trade, we call it "balance of trade" or "trade deficit"...and ours is humongous.
If our country runs a loss every year, eventually the $ that we borrow becomes more risky...even a financial behemoth can't run a loss forever. We have to trick ourselves to believe otherwise.
In fact, I wrote the following just 9 days ago (http://mikedorsey.info/us-economy/):
"A couple of times in Finance class, I would ask the professor something like 'why do we call this the risk-free rate – does that mean there is 0 chance that our country defaults on its debt?'. Everyone would look at me like I’m from Mars…but if my company had the debt, income, and competitive profile of the US economy, I would be absolutely mortified (like, in the full etymological meaning of the word). And if our country’s balance sheet was anonymized and we all analyzed it in b.school, we would all say 'yeah, this company is totally SOL'.
Seriously, what would an honest rating agency rate our bonds at (if you took away a bunch of zeros and measured it against what we consider to be healthy financial organizations…)? Would our country receive the same type of ratings that Apple would get right now on its debt? Hah, no way! So I sort-of expect a long term, protracted, and painful downward trajectory for our economy. I don’t like to think like this, but I would have to deceive myself to look at these types of numbers and believe otherwise."
So, to my cynical / bearish longterm economic view, the surprise isn't that we have started the process of "downgrading our credit rating"...I'm just surprised that as of 2 years ago, everyone chuckled at my apparent naivete for asking these questions...and 9 days ago, I thought "what the heck, I'll say it again", and now, it's already started.
Anyways, there's no need to freak out. This isn't a novel occurrence. The market ebbs and flows. As long as the US runs a massive loss, then I, for one, will be broadly uneasy about our country's position. But this isn't an "OMG, the sky is falling, what's going on? where did this come from? what do we do?", this is a "we need to step up and seriously take notice of our longterm imbalance if we want to stop this 30 year trajectory.
But what can you and I do? Well, we can dig in, work hard, continue learning, and try to sell more than we buy.