A little caulking, and you can't even tell the difference

UPDATE 7:14 p.m. MDT: AA+, baby! First American downgrade in the 90-year history of ratings! U-S-A! U-S-A! Fortunately, the Obama Administration has unveiled the true culprit: the messenger.

A nation’s credit rating is analogous to your credit score. Pay your bills on time, never carry a balance, and your score will be near the theoretical maximum of 850. Act like the representatives and functionaries of the United States government do, and your credit rating will be closer to the theoretical minimum of 300.

The higher your score, the more credit you’re entitled to, and at lower rates. Your diligence on the front end can result in lower mortgage payments when you apply for a loan. Same goes for car financing, etc. (Not that we encourage car financing, but if you can find a rate so low that it lets you free up your own capital to be invested elsewhere at a higher rate, take it.) It’s hard to find a definitive source for this quote, but the classic line is “Credit is most available to the people who need it least.”

National credit ratings are on a different, more coarsely calibrated, non-numerical scale. The same principle is supposed to apply: the better the rating, the lower the interest rates the country can borrow at; and indirectly, the more likely it is that businesses will invest in said country. Standard & Poor’s, the biggest credit rating agency, uses the following rating scheme: AAA/AA/A/BBB/BB/B/CC. Below AAA, each rating also includes either a plus sign, or a minus sign, or nothing. Beyond that, each rating includes a terse descriptor: “positive”, “stable”, the ominous-sounding “watch negative” or “negative”. Confusing things even more, the “positive” and “negative” descriptors have nothing to do with the + or – signs found in some ratings. S&P (the same people behind the S&P 500 stock index) doesn’t rate every country in the world, because places like Tuvalu and the Vatican City don’t attract enough foreign investment to warrant anyone crunching the numbers (nor do those countries even have their own currencies.)

Standard & Poor’s does rate 128 countries, including pseudo-countries such as Abu Dhabi and Hong Kong. There are no AAA positive countries by definition, as they have nowhere to go but down. Here’s the complete list of AAA stable countries:

Australia
Austria
Canada
Denmark
Finland
France
Germany
Hong Kong (but not China, which is AA- stable)
Liechtenstein
Luxembourg
Netherlands
Norway
Singapore
Sweden
Switzerland
UK/Isle of Man/Guernsey

Notice anything missing? Here’s the complete list of AAA negative countries:

United States

Which for us is historically low. Fall to the next level, AA+ stable, and we’d be sharing creditworthiness with New Zealand and closing in on Belgium.

If you’re interested, the only CC country in the world is Greece.

Therefore, it would seem, the United States’ transition from the world’s most dynamic economy to a backwater incapable of paying its bills and digging ever further into debt is  a foregone conclusion at this point. But it isn’t, and this is why:

Volume.

Let’s say you make $40,000 a year and indeed use credit as wisely and sparingly as possible. And say you somehow crack the Fair, Isaac & Co. secret formula to the point where your credit score sits at a perfect 850. You apply to your bank for a loan, primarily just to see if you can do it but also because you want to see how low an interest rate you can qualify for.

The moment after you walk in, Sergey Brin and his 849 credit score apply for a loan.

Who do you think’s going to get a loan with more favorable terms? Mr. Brin might not be quite as on top of his obligations as you are, but he’s not far behind. And he’s got far more money than you do, and far more potential for making yet more. Don’t take it personally.

On Monday the House of Representatives voted to raise the debt ceiling, leaving the Senate to rubber-stamp a similar bill Tuesday and drawing more attention to a particular vote than anything since the nationalization of health care. The nation will reach its credit limit in a few months, Congress will request another increase, and so on indefinitely. Why? Because they can. The Greeks didn’t have this luxury of preeminence, at least not in the last 25 centuries or so.

For the last few weeks we’ve been subjected to a panicked call from journalists who don’t know any better and politicians who never let a good crisis go to waste, trying to make you believe that the world economy is on a precipice. It isn’t. Economies don’t collapse overnight, and if they did it wouldn’t be because of legislative stalemate. If Standard & Poor’s and its fellow agencies Moody’s and Fitch downgrade America’s rating, it’s still going to be relatively strong. Far stronger than China’s, for instance. And we’ll still attract investment from abroad, simply from sheer size. No other country can boast 300 million first-world consumers with a relentless penchant for buying things. That’s a greater determinant of economic robustness than anything else.

That’s not to say that our economy isn’t in the toilet. Nor that our elected representatives don’t need to exercise some serious restraint. Raising the debt ceiling (to more than twice what it was during George W. Bush’s first term) only invites more opportunity to finance an already unsustainable level of government spending. But let’s call Monday’s vote to raise the debt ceiling what it was: it wasn’t a last-second attempt to right the American economy before it collapsed. It was an indirect means of letting our nation’s record debt break even more records. Greater interest payments and an economy built more on borrowing than on wealth creation? Yes, but that’s your grandkids’ problem.

**This article is featured in the Carnival of Personal Finance #322: Diminished Expectations Edition**