What happens when America's credit rating gets downgraded?

That said, the current warning shouldn’t be taken lightly, precisely because ratings agencies like Moody’s have been so late in the past. Calling attention to the country’s debt level must mean we are really heading for trouble.

So what would it mean for a downgrade? First, higher borrowing costs.

Lower ratings mean that the chances of default are greater, and to compensate for that risk, investors demand higher interest rates. So in addition to higher taxes to pay for the huge costs of health care, cap and trade, and everything the president has in store, expect even higher taxes to pay off the new and more expensive debt needed to finance these programs.

There is also a prestige issue. The U.S. Treasury bond, long regarded as the gold standard in the global bond markets, would lose its luster, reflecting a broader unease about U.S. economic might. Part of the reason why rich people and companies around the globe invest in the U.S. is because it’s a safe haven—a place that pays its debts and respects business. That respect will fall more than a couple of notches with any downgrade.