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The Upside of a USA Downgrade Threat

Fin - Breakout - US

Just when Wednesday's stock market rally was picking up steam, Moody's crashed the party. The ratings agency threatened to downgrade U.S. bonds if no resolution is reached on the Debt-ceiling in short order, a move that quickly took the steam out of stocks. With Moody's warning the idea of a government default having a temporary impact is gone. A downgrade isn't forever but it's long enough to impact Americans outside the beltway for years to come.

In the mind of my Breakout co-host Matt Nesto, Moody's (MCO) is behind the curve by not going ahead and dropping the U.S. rating now. "Why wait?" he bellows in a guttural cry not unlike Jake LaMotta telling Sugar Ray to hit him. Nesto says a fiscal punch in the government's face is overdue. "We're a manufactured AAA" he notes, adding that the U.S. is actually rated more highly than Japan, a country from whom we borrow. The relationship between the U.S. and Japan's ratings are akin to a jobless deadbeat having a better credit rating than the brother-in-law from whom he's trying to "bum a few bucks."

Nesto's view isn't incorrect but it isn't new, either. America has been writing checks based on her reputation rather than fiscal reality for years. We don't want to take that first downgrade if it can be avoided, and luckily in this case, it can be. Once the U.S. is downgraded there's no going back. Like a reputation, credit takes a lifetime to build and a moment to ruin. If the U.S. actually gets downgraded we may as well be Italy in terms of the global economic picture.

For a change of pace I've got a slightly less extreme view. I don't want an actual downgrade but I want Moody's to make noise about a ratings cut. I want the threat for the same reason I loved Bernanke calling the impact of a debt default a potential "calamity" yesterday. I want as many voices as possible telling Washington that pushing us towards a fiscal nightmare is unacceptable. Defaulting on our debts isn't about just a few people missing checks versus a few millionaires paying more taxes anymore. It's about national pride and our word being our bond. It's about all of us becoming deadbeats.

Say what you will about Moody's past ineptitude; no matter how much you abuse ratings agencies I've almost certainly said something worse. But this time Moody's got it right. This summer, this moment, is a rare time when Americans can bond together and speak with a united voice. Join Moody's, stand with Bernanke, and link arms with me as we figuratively point our faces at Washington DC and rage against the political machine.

Call your Congressmen and Senators. Tell him or her to just shut-up and do whatever needs to be done so America can avoid becoming a fiscal banana republic. Make this paralyzing national debate go away by avoiding a default and resulting downgrade. Get your act together or get sent home in 2012.

It's really that simple.