I was once again a guest on the famous DriveThruHR daily a few weeks back (Aug 8, 2011). We had scheduled my appearance about 2 weeks before and how funny was it that on the Monday they asked me the question “What keeps you up at night?” that Standard and Poor’s had just announced the downgrade of United States from AAA to AA. Ahhh… well here we are; William Tincup, Bryan Wempen and I discussing Work, Business and the affects of the S&P downgrade. I am no economist but I am aware!
Enjoy and let me know what you think!
(A short commercial may run before the interview begins)
The Debt Ceiling Story – An analogy (From the MarketingHeadHunter.com):
The U.S. Congress sets a federal budget every year in the trillions of dollars. Few people know how much money that is so we created a breakdown of federal spending in simple terms. Let’s put the 2011 federal budget into perspective:
- U.S. income: $2,170,000,000,000
- Federal budget: $3,820,000,000,000
- New debt: $1,650,000,000,000
- National debt: $14,271,000,000,000
- Recent budget cut: $38,500,000,000 (about 1 percent of the budget)
It helps to think about these numbers in terms that we can relate to. Let’s remove eight zeros from these numbers and pretend this is the household budget for the fictitious Jones family.
- Total annual income for the Jones family: $21,700
- Amount of money the Jones family spent: $38,200
- Amount of new debt added to the credit card: $16,500
- Outstanding balance on the credit card: $142,710
- Amount cut from the budget: $385
The S&P Downgrade – Background: AAA to AA+
- Standard & Poor’s – AA – remember that this group also helped hurt the markets with their AAA ratings of the mortgage backed securities
- Moody’s – AAA
- Fitch – AAA
- The highest rating for the first time in 70 years
- The rating change is and should not be a surprise but there are 2 main reasons: (1) We spend more than we have coming in and (2) politics (It is clear that the rise of the Tea Party and the pledge of Republicans in general to never raise taxes, along with the Democrats unwillingness to cut Social Security, produced the downgrade)
- We should not be worried but we should definitely become aware.
- More than just an indicator of US politics, business practices and personal debt
So there will be two things we will need to focus on
- Employee Motivation
- Leadership Challenges (99% of the company looking for 12 people to decide)
Business (Leadership Challenges): China complained but is still buying US Treasuries. Why? Out of safe bets we are still the safest.
- I am not an economist – China keep its currency value artificially low
- One way they do this is by buying US treasuries
- This low value of the Yen keeps their goods and services low and marketable globally
- Being able to sell your goods globally at a much lower rate than other competitors keeps you more competitive.
- This affects US companies in their ability to be and stay competitive
- High Competition leads to the potential of Lower margins and possibly an increase in operating costs
- This affects a business’s ability to maintain staff leading to the situation we are in now.
S&P Work (Motivation – Physiological and Safety):
- On average countries with lower ratings have higher interest rates.
- So borrowing costs of not only the U.S. gov’t but also American consumers is likely to go up, even if not significantly at first.
- What’s more, Treasury bonds, long one of the most stable securities in the market, are likely to get more volatile.
- Stock and retirement will definitely be affected in the short term
- Consumer and employee confidence (leading to speculation) which is the main reason we went into a depression (Oct of 1929)