Although I am not an expert in international economics (or anything else for that matter), I do have some thoughts related to the downgrade. my initial reaction was three-fold: 'HOLY SH*T', 'meh, who cares' and 'maybe this is actually good'. The first is mostly as a result of the fear of how people (ie investors) will react to this come monday morning and the impact it will have on world markets. Many have said this was inevitable and even should have happened months ago, so perhaps its already priced into the market. The past weeks' performance may have been the 'final adjustment'. Regardless there will surely be some panic. But its questionable where the money would flow, so we'll see whether the reaction is really all that bad.
The second reaction is a reflection of the fact that these rating agencies were a primary factor in creating the environment for the recession. And when they had the chance, they got that completely wrong. Maybe we should re-think their role in our system. Our yields are near record lows, which of course means people are clamoring head over heels to lend to us. If you want to believe something, believe the market, not the guys who tell you what the market should be. One of the interesting things about this downgrade was the admission that this might require a 'readjustment' to other countries' ratings in order to keep the proper relation between them. In other words, although we may not deserve the safest rating overall, we may still deserve to be comparatively ranked as the safest investment.
And the third is because maybe we do actually need a bit of a wakeup call. We continually refer to ourselves as the greatest nation on earth. While there are many reasons for this, I think its fair to question whether our implementation of our ideals is as good as it could be. While we have created immense wealth and technological progress and have modeled our system on the concepts of personal liberty and equality before the law, we also have extreme poverty, extreme income inequalities, excessive crime and inequality in the access to all sorts of quality of life metrics. Its possible that our reaction to the downgrade is evidence that we felt a sense of entitlement to that AAA rating, and that has perhaps been preventing us from working hard to do the work required to actually earn what we think we deserve. Not only with respect to these ultimately meaningless credit ratings, but in the way we run our society and treat our fellow citizens.
Finally, I know a lot of people are looking to lay blame. Although I don't think thats too constructive, I will say that the fact that we are garnering low yields and the specific mention by S&P that the inability to come to agreement on additional revenue was their primary worry implies that this blind adherence to 'no taxes' needs to be 're-evaluated'. 'Starving the beast' is definitely one strategy toward reducing spending, but, in my opinion, it rarely (if ever?) results in a truly positive outcome. I am reminded of a saying that includes the words, 'nose', and 'spite' and 'face'..