America's Credit Score at Risk

For you and I, it is our credit score -- our FICO score -- that determines whether or not we're credit worthy enough to get a loan or another credit card. People with poor FICO scores will generally pay higher interest rates if they are even able to get a loan.

For an entity like the U.S. Government, the equivalent of the FICO score is the Moody's Investment Rating. Right now, America's investment rating is the highest possible at AAA --- meaning that America is an excellent credit risk. Earlier this week, Moody's Investment Service warned that the United States' high rating is now at risk because of it's massive and unsustainable deficits and it's failure to come out of recession (Click to See Full Story: "Moody's warns nations to cut spending or risk AAA ratings"). This is the second warning issued to the United States by this premier rating's agency in just so many months.

Just as if your personal FICO score was lowered, the United States will have to pay higher interest rates for all the massive debt we've accumulated if we lose that AAA rating. Currently, about 40 cents on every dollar that is collected by the IRS goes to just pay off the interest. If our credit rating is lowered, that amount that goes to interest could be as high or higher than 50 cents on each dollar. That's because the people who hold the debt (such as China) will demand higher rates to offset the higher risk of default on the loans. Increasingly, we are getting to a tipping point where there isn't enough money in our entire economic system to pay off our debt.

As a point of reference we now owe $14 trillion dollars. With 7 billion people in the world, that means that, if we could spread that number across the entire world, each and every living person on this planet would owe approximately $2,000. As it is, our debt is so great that each American citizen owes about $181,000. If that amount took into consideration all other liabilities such as the unfunded portion of Social Security, that number soars to nearly $350,000 in debt per person in America. (Click to see the national debt clock)

When you really think about, if we didn't have our current and future debt, our government could provide the same amount of services with nearly half the same amount of taxes being collected. Or, in other words, without this burden, all businesses and individuals that are currently paying taxes could see a 40% reduction in the taxes. That alone would make our products more competitive in the world market place and we would see a growth in jobs that would be unbelievable. We would actually regain many of the manufacturing jobs that we have lost over the last 40 years.