We cannot say we were not forewarned about a possible drop in the S&P rating for sovereign debt of the United States from the gold standard of “AAA”. Back in April 2011, S&P cut its outlook on US debt from “stable” to “negative” on account of the mounting deficit.
I think the current political battle over raising the Debt Ceiling will end with an eleventh hour deal but the Federal Government’s credit rating may be cut, anyway, even with a deal that avoids a default. Mr. Deven Sharma, president of Standard & Poor’s, told a US House subcommittee the US would need to work out a deficit reduction package of about $4 trillion over the next decade for the nation to keep its “AAA” rating.  The Boehner and Reid deals now on the table fall well short of $4 trillion and President Obama’s original request was for a Debt Ceiling increase with no deficit reduction at all.
If the rating is dropped from “AAA”, there will be much partisan blame over who caused it. The good news is a drop to “AA+” is hardly a high risk rating, putting the USA at the same rating as Belgium. There will be short-term portfolio churn as some pensions and money market funds require holdings to be “AAA”. Other buyers are likely to step up for US debt, though probably at slightly higher yields. Nevertheless, the blow to American prestige will be enormous.
Do not blame the ratings agencies who are simply messengers of the bad news. The fact is a ratings downgrade becomes inevitable when servicing the debt becomes more risky.
Do not let politicians mislead you into thinking a ratings downgrade unexpectedly popped up out of nowhere. We have been warned many times the past three years as seen in this sample of headlines:
“S&P says pressure building on U.S. “AAA” rating,” Reuters, Sept. 17, 2008 
“Moody’s Says U.S. Debt Could Test Triple-A Rating”, New York Times, March 16, 2010 
“Moody’s and S&P Alert US About Credit Rating”, New York Times, January 14, 2011 
“U.S. Warned on Debt Load: S&P Signals Top Credit Rating Is In Danger, Stoking Political Battle on Deficit”, Wall Street Journal, April 17, 2011 
“Analysis – United States gets closer to losing its AAA rating”, Reuters, July 25, 2011 
May we be forewarned about what may happen in the future. There are many notches below “AA+” a profligate United States may gradually be cut to. Most ominous is how continuous growth in the deficit relative to GDP exposes the US to higher interest rates whenever the rate environment turns up. The deficit then grows as the debt used to pay that interest is added onto old debt. A 3% increase in average interest costs on a $15 trillion debt amounts to $0.45 trillion in new interest expense each year. Most 30-year bonds will not adjust any time soon, but short-term T-bills roll over every month, reseting to the latest interest rates.
 http://www.nytimes.com/2011/01/14/business/economy/14place.html?_r=1&ref=standardandpoors which refers to Moody’s report: http://graphics8.nytimes.com/packages/pdf/business/AaaSovereignMonitor-January2011.pdf