For the first time since debt ratings were created about a century ago, the creditworthiness of the United States is less than first-rate. According to Standard & Poor's, we are now rated lower than France, Australia and Canada. Perhaps we can take some solace in the knowledge that we are one step above Portugal, but for some time Portugal has been on the verge of having to beg Germany for a handout.

The downgrade has not come as a surprise: rating agencies have had us on watch, and government officials have been speaking about possible action by the rating firms. But in the farce that is Washington, many unpleasant things, even those that are anticipated, leave our leaders shocked when they happen, and our country has no plan to deal with it.

Although it is difficult to gauge the immediate effect of the downgrade, most of the possible results are unpleasant.

Many institutions that hold US government securities do so precisely because they were rated AAA and may have to sell them because they are not permitted to invest in anything riskier. Some institutions may be able to get an exemption, but quite a few investors are likely to shed their holdings in anticipation of higher rates. In a panicky market, this may become a self-fulfilling prophecy, and the cost of government borrowing could rise dramatically. In any case, the downgrade will do nothing to instill confidence among investors who for several years have had little of it. The ultimate effect will be on private debt, like mortgages and lines of credit. All of us can expect to pay higher prices for borrowed money and almost everything else we buy, too, and high prices for essentials may slow the crawling economy to a paralyzing halt.

None of this will help our crippled economy, because expansion requires more private debt, but institutions with cash will continue to be reluctant to part with it. Large employers can be profitable even in this rotten environment because they become more efficient and can shed overhead, but smaller businesses, the engines of recovery, can't be created and expand without additional capital, and economic expansion will fizzle without it. 

Never one to miss an opportunity like this, the government of China announced sanctimoniously that we brought this upon ourselves by borrowing money to sustain expensive military forces and bloated social services. We will tend to ignore the carping of a country that systematically steals from us in a variety of ways, suffers from increasing inflation, and has a credit rating below ours. But there is a certain measure of truth in the Chinese criticism, and we need to look no further than our elected knuckleheads' embarrassing all of us during last week's debt ceiling charade.

The debt itself---both public and private---is certainly a problem, but weak consumer and investor confidence are more troubling. Polls show that we have less faith that things will get better. Even more disconcerting is that almost nobody has any respect for the institutions that have the responsibility for running the whole thing. The ill repute in which our system is held by our own citizens is stunning. A NY Times/CBS poll this week found that only 18% of Americans approve of the job that Congress is doing. It would be difficult to engineer a worse report card, even if that were the objective.

For decades, both the executive and legislative branches of our government have made a hash of their charters, and the people are justifiably disappointed and not a little angry. There is increasing discontent and frustration, the ingredients of futility, and futility will make us weaker still. While we await some small glimmer of leadership from Washington, we still have economic problems that will not solve themselves. The lousy economy is not insoluble, but it requires real leadership from officials who actually care about the American citizens who put them in positions of authority and responsibility.