Standard & Poor’s would cut the U.S. credit rating to its lowest level and Moody’s Investors Service said it will probably reduce its ranking if the government fails to increase the debt limit, leading to a default.
Why is the rating still AAA? Imagine you have a friend who has to borrow more from his creditors so that he can make his interest payments. Does he have good credit? How stupid are the creditors for lending him more? Do they really expect him to pay the loan off?
It's widely expected that the US congress will raise the country's debt ceiling by the August deadline (whether this is a firm deadline is another question). Then we'll have another QE, though it'll be called something else. (Jim Rogers offered the name "Cupcakes.") And maybe they'll raise the debt ceiling another time when it's reached yet again. But this can't go on forever.
The US will default on its debt. It probably won't be because the debt ceiling has been reached. They'll find some other way. Maybe we'll get a new currency. Thomas G. Donlan of Barron's mentioned how the US defaulted twice in the last century:
In 1933, the government defaulted on its debt backed by gold by abrogating the gold clause in Treasury securities.
Then, in 1971, Richard M. Nixon explicitly defaulted on this gold exchange standard, withdrawing the American promise to pay gold for dollars held by foreign governments.
And what happened? Nothing. Third time's a charm?
Financial gurus like Marc Faber advocate buying some gold every month. Silver too, while you're at it. That sounds like a good idea.
I'm not quite sure why some people buy silver exclusively. The usual explanation is that they can't afford gold. But if you can afford silver, you can afford gold. Most precious metals dealers sell half ounce gold coins, tenth ounce gold coins, and gram gold bars. A 2.5 gram gold bar, for example, is around $130 at current prices (plus the dealer's premium), about four ounces of silver.
Unlike many of the precious metals bugs, I don't expect to make huge profits from my gold and silver. But I do expect that the amount of stuff I can exchange my gold for today will be around the same a year from now and maybe a decade from now. I don't have such expectations with the dollar.