Short Sweet and bitter...
The downgrade is just another signal that big time inflation is coming. The U.S. Treasury borrows money by issuing bonds. Because it has a massive spending problem and can't live within its means it runs a perpetual and ever expanding deficit. The deficit is financed by issuing more bonds. This process is currently going parabolic as the U.S. debt load is expanding at an alarming rate. See the chart below.
The U.S. stopped minting quarters and dimes out of silver in 1964 and it removed the gold backing of its dollars in 1971. There is now nothing backing the dollar. It is pure paper as is every other currency in the world.
The bonds are mostly purchased by fund managers, foreign governments, and by the Federal Reserve. The foreign governments purchase the bonds with dollars amassed from trade surpluses with the U.S., and the Federal Reserve buys its bonds with dollars created out of thin air with a bookkeeping entry.
By purchasing the bonds, the Fed enables big government spending to expand unchecked. Without the Fed buying bonds, interest rates would rise and it would be a natural check on the ability of congress to spend money it doesn't have. The additional interest expenses caused by the higher rates would prevent the government from spending borrowed money recklessly. Enter the Federal Reserve buying the bonds with no check on their dollar creation from being backed by gold and silver and you have the crisis that we are living though today.
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