What does S&P's downgrade of US credit mean?

It was sobering to wake up to the news that Standard & Poor's downgraded the credit of the USA from AAA to AA+, but it’s unclear whether S&P’s downgrade now makes more sense than Moody’s and other credit rating agencies' decision to delay theirs. Our current and pending finances more than justify the action as our nation’s finances continue to accelerate beyond the realm of reason. To the extent that S&P’s downgrade serves as a wake-up to our political leaders to get their fiscal act together before even more dire consequences occur, then the downgrade is probably good for America over the long term.

However, it’s unfathomable that the most powerful military and economic power the world has ever known now has a lower credit rating than more than a dozen other nations. How is that possible and what does the downgrade really mean? America is still the only nation in the world that can ultimately back up its promise to pay its bills (and defend other nations rights to do the same) with its superior economic and military might, which is why the US dollar, as battered as it’s been in recent years, is still the world’s reserve currency. How can Germany and France, for example, and other smaller members of a European Union (EU) that is crumbling before our very eyes still have AAA ratings? The imminent (hopefully) bailout of the EU will likely and ironically include assistance from America, just as our TARP program bailed out European banks along with our own.

What happens to all those AAA sovereign credit ratings if our newfound fiscal awareness leads to a scale back of our multi-trillion dollar program to keep the world safe from terrorists and open for international trade? What does it mean that Canada, our northern neighbor, is now the only AAA rated nation in the Western Hemisphere? Can AAA rated Switzerland truly remain a safe-haven without backup from American security? For that matter, what happens to the world’s well being if US financial aid and physical assistance shrinks to meet its new budget? Are other AAA rated nations going to risk jeopardizing their coveted superior ratings by offering to pick up the slack?

Aside from the disappointment and embarrassment of losing the superior credit rating enjoyed since such ratings began, S&P’s credit downgrade is probably justified and necessary. However, S&P will be remiss unless it updates other sovereign ratings in the new light of America’s loss.