If you're old enough to remember Laurel & Hardy, you remember that Oliver Hardy (the heavy one) often chided his partner Stan Laurel as Stan got them into yet another predicament by saying... "Now you've finally gone and done it, Stan!" 

Well, in grand Laurel & Hardy style, Congress has finally gone and done it... the debt ceiling deadline has been averted.

Crisis over, right?

Well, don't get too excited America because the devil is in the details here.  You see the REAL fighting over future compromises, including all sorts of possible short, medium and long-term unintended consequences of this "compromise," has just begun.

And while the yahoos in Washington all pat each other on the back for their last minute deal, they are overlooking the next potential crisis—a downgrade of the U.S.A.'s pristine AAA credit rating.

On to the next predicament, Ollie.

First, a little historical perspective...

In 55BC, the Roman Cicero wrote, "The budget should be balanced, the Treasury should be refilled, the public debt should be reduced, the arrogance of officialdom should be tempered and controlled and the assistance to foreign lands should be curtailed, lest Rome become bankrupt.  People must again learn to work, instead of living on public assistance."

Well, unless you missed that day in ancient history class, you know that Rome didn't listen and things didn't end well.

Our modern day Cicero, a.k.a. the credit ratings agencies, have told our politicians roughly the same things over the past several weeks.  Get your financial house in order, or we're downgrading your credit rating.

And that could still very well happen even though we have a debt-ceiling deal!

If that happens, the bozos in Washington will have accomplished something I never thought I'd live to see... the decline and fall of the American Empire!

What a Credit Downgrade Means to You

To help you understand what a U.S. credit downgrade would mean to you, think about your own credit score and how you would be affected if it was downgraded. 

It would cost you more to borrow money, IF you could find a lender willing to take a chance on you.  It could prevent you from taking care of your family and your financial responsibilities. 

So, the mangling of our nation's debts and deficits by entrenched pols seeking re-election will affect us, "the U.S. family," too.

Australia, Canada and Japan have all gone through downgrades in the 90's and come back from the brink in far better shape.  And, we can as well, but it will cause the most problems for us the consumers, not the favored constituencies of politicians.

Here's what to expect if a downgrade happens:

Any future purchases you make on your credit cards will come with higher interest charges.  The increase could be as much as 5%.  With the national average interest rate currently at 15%, you might very well see 20% charges on unpaid balances going forward, turning a $1,000 charge into additional expenses of $1,300.

Homeowners, such as our friend John who has a 5/25 adjustable mortgage, can expect a large increase in their interest rate once year 6 arrives unless he can switch to a fixed rate mortgage right now.

The stock market, although all the "talking heads" and "vested interest" Wall Street types insist the downgrade has been "factored" into the market already, will create some real sleepless nights for average investors. 

This is not the time to cross your fingers, close your eyes and hope. 

If you don't want to sell stocks and mutual funds, at the very least, put in stop loss orders at prices you would be willing to accept should the markets go into free-fall on news of a downgrade.

As a reminder of how fast things can get ugly, when TARP didn't pass the first time there was a 777 point drop on the Dow in just one day.  We have even seen an estimate of a 2500 point loss over the short-term by one analyst.  (But, that's just one man's opinion.)

Nonetheless, you can dress up the "downgrade pig" and even put lipstick on it, but we are not the country we once were and we will not return to what we were unless, and until, Washington learns spending discipline NOW.

In the words of economist Jon Kenneth Galbraith, "Politics is not the art of the possible.  It consists in choosing between the disastrous and the unpalatable."

In Washington's inability to even opt for the unpalatable, it has now saddled our country with the disastrous.

What's next, Ollie?

Read More In: Credit Smarts