The clueless idiots at the ratings agency simply don't understand that countries that spend in their own, non-convertible, free-floating currency can NEVER have a payments problem. Their ability to pay is, by definition, without question. While there may be exchange risk associate with this, their ability to meet all debts and obligations denominated in their currency is iron-clad. (Read Warren Mosler's excellent letter in the previous post.)
However, the clueless jerks at the ratings agencies will go with their inapplicable analysis. (Remember, these are the same guys that rated all the subprime junk, Triple-A!)
The U.K. downgrade now makes it almost a near-certainty that the U.S. will soon lose its AAA credit rating.
When this happens we will all get rich. This is the trade we can all retire from!
Here's how to play it:
When the ratings agencies downgrade the U.S. (it's coming, don't worry) there will be a knee-jerk and, likely, viscious selloff in the Treasury market. (You might even want to play that by buying some, TBT now. That's an inverse Treasury etf.)
However, when the selling subsides,
buy as many treasury futures and call options as you possibly can!
Because the downgrade will have zero impact on the America's ability to pay its debts, just like Japan's downgrade had no impact on Japan's ability to pay its debts. Treasuries will remain highly sought after savings accounts even after the loss of AAA status and they will rally right back to where they were prior to the downgrade.