THE KEY WORD IS "DOWNGRADE" – AT 8:49 A.M. ET:  That's the word we're hearing more and more, even more than "default."  Even if the geniuses in Washington avoid a national default in the coming debt negotiations, America could still face a "downgrade."  It sends a chill up the spine of D.C. politicians, especially in the White House, because it's 1) a national humiliation, and 2) easily understood.  From The Politico:

It’s not the default that strikes the most fear in the White House and Congress these days. It’s the downgrade.

Even Republican leaders say the country can’t go into default, and they’ll do everything possible to raise the debt limit by Aug. 2.

But what really haunts the administration is the very real prospect, stoked two weeks ago by Standard & Poor’s, that Barack Obama could go down in history as the president who presided over his country’s loss of its gold-plated, triple-A bond rating.

Obama could win and lose at the same time, striking a deal to avoid default but failing to pass muster on the substance of that deal with credit agencies, which could go ahead and downgrade the rating anyway.

Financial analysts say such a move would hit Americans with more than $100 billion a year in higher borrowing costs, but it’s not just that. It would be a psychic blow to a nation that already looks over its shoulder at rising economic powers like China and wonders, what’s gone wrong? And it would give the president’s Republican rivals a ready-made line of attack that he’s dragging the country in the wrong direction.

It’s what drives his Treasury Department into cajoling and pleading with the bond ratings agencies to be patient, like a harried coach working the refs from the sidelines.

It’s a factor influencing Obama’s rejection of a short-term deal: The administration believes the ratings agencies won’t like it.

COMMENT:  From what we've seen in sweeping the internet and news outlets, more and more commentators believe we will be downgraded.  As the story notes, this could produce real psychological damage.  This country has the self-image as a kind of financial Gibraltar, with the highest ratings.

If we do get downgraded, one sad byproduct will probably be the perception in minority communities that race is involved, that the nation's first black president is being slapped down by the old white boy's financial network.  This would be a tragic development, but I'm afraid it will happen.

July 27, 2011