The newspapers this week are replete with headlines about the Standard and Poor’s warning about a possible downgrade in the credit rating of the United States. This has been referred to as a “Wake-Up Call.” Those who see this as a wake-up call must spend a great deal of time under a rock. Our apparent inability to find a way to deal with our debt and deficit could render our fiscal profile “…meaningfully weaker than that of peer “AAA” sovereigns” according to S&P. Certainly, S&P is not alone in seeing this.
Interestingly, the report refers to the United States as a sovereign. Many take sovereignty for granted. Those who do should consider Greece, Ireland and Portugal which are no longer sovereign nations. Their decisions are not made by Greeks, Irish or Portuguese. Their decisions are made by the bankers of the European Community. Could that happen here? While we are headed toward the fate of those countries, there is one important distinction. When their fiscal position became unsustainable and they were about to default on their obligations, the European Community and the International Monetary Fund came to their assistance. They lent billions of dollars to each of the countries to bail them out. When we default, there is no one to bail us out. I guess that we will be different from Greece, Ireland and Portugal. We will continue to be a sovereign, a bankrupt sovereign. Everyone should also understand that we were materially involved in that bailout. We loaned billions to the European Central Bank and we are the largest contributor to the International Monetary Fund. Didn’t know that, did you?
It seems that everyone in Washington knows that we must address our debt and deficit. They simply have fundamental disagreement about how to do it. The Democrats and liberal contingent want to employ undefined spending cuts and tax increases. The Republicans and conservatives have provided a specific road map of cuts that they feel are needed. Some would argue that neither proposal would be sufficient to deal with debt and deficit and that we are simply kicking the can down the road.
Back to the credit rating. While to some the S&P rating warning is a wake-up call, there are many indicators of our dire fiscal situation. Any one of them could result in an international vote of no confidence. The result of such determinations include significant increases in the interest rate on the money we borrow, all $14.3 Trillion. The dollar would no longer be the “safe haven” for international investment. The dollar's value could fall more dramatically that when the Federal Reserve monetizes the debt.These events would be sufficient to return our economy to the toilet. This is the beginning of another downward spiral. The impact will be felt at all levels of society.
Those in Washington would prefer that you not be involved in dealing with these issues. Here, however, the business of the People necessitates the active understanding and involvement of the People.
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