US Credit Rating Downgrade: What It means To The Average Joe

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The S&P downgraded the US credit rating from AAA to AA+. This was expected. And then the stock market was down 10% last week. So what does all this mean to the average guy?

1. Profits disappear.
When the stock market goes down companies lose equity. As the companies lose equity they try to compensate by implementing cost cutting measures. Any expansion plans are put on hold.

2. Unemployment.
Unemployment is still high at 9.1%. This represents about 14 million Americans out of work.

3. Consumer confidence.
Consumer confidence is low. No jobs. House prices falling. Tight credit. This is not the time to go out and shop. Consumers are focusing on paying down their debt and saving a bit for a rainy day.

4. Housing.
The inventory of foreclosure homes is about 2 million units. It would take over 103 months to clear this inventory. As a result of the large inventories, house values are dropping as much as 10% each year. The question now is "how long would it take for me to be underwater?".

5. Europe.
America needs market to sell goods and services. The US market is just not big enough. Europe has always been a good choice. But recent events in Greece and Spain have dampened the enthusiasm of US exporters. Unemployment in Greece is 15% and in Spain it is 20%.

What should the average Joe do?

1. Do not take on any more debt. A new car is exciting, but wait.

2. Hold on to your job, and do not expect to get a raise.

3. Learn to do repairs around the house yourself. Forget about paying a contractor.

4. If you have teenagers, let them get a job. Flipping burgers never killed anyone. This saves you money for all the extra activities they like.

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