US Waves Goodbye To Triple-A Credit Rating

Reuters UK brings us the inevitable news of credit rating agency Standard & Poor’s downgrading of United States debt from its prized triple-A position to AA-plus, citing concerns with the government’s budget deficit and rising debt burden.

As I recounted yesterday, the recent U.S. deal on raising the debt ceiling and supposedly reducing the deficit and debt was a calculated fraud. Instead, the U.S. will increase its borrowing and spending, albeit at a slightly slower rate than projected.

Commenting on the announcement, Republican Senator, Jim DeMint of South Carolina observed very much the same, saying:

The deal Congress just passed over conservative objections has already had its obvious effect, the loss of America’s credibility around the world. The deal was not a serious attempt to solve our spending and debt problem, it was a political solution meant to kick the can down the road. The only real solution to our spending and debt crisis was Cut, Cap & Balance that the president rejected out of hand.

The announcement by Standard & Poor’s was largely expected with the agency having placed the U.S. credit rating under review on the 14th of July. It is therefore unlikely to have much on an immediate impact on the markets. However, the long term implications for the United States and the world economy could be far reaching.

The Chinese, who are currently the biggest single creditor to the United States, were immediately critical of U.S. debt reduction steps (or lack thereof), and called for the creation of a new, stable global reserve currency. The country’s official news agency, Xinhua, said:

The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone.

China has also strongly urged the United States to cut military and social welfare expenditure, warning that further credit downgrades would very likely undermine world economic recovery and trigger a new round of financial turmoil.

Meanwhile, the BBC’s great Europhile, Mark Mardell has been asking whether the separated system of Government in the United States is to blame for the financial crisis, and wondering if ‘the system itself may not be fit for purpose’.

Much like his former colleagues in the EU, Mark is rather adverse to actual opposition. In their world, the ‘dysfunctional’ government he claims the U.S. system produced has led to the prevention (mainly, in his eyes, by the Republicans and the Tea party) of a serious and unified agreement on the future of the dollar and the United States economy. If everyone would only just agree (or be given no choice in the matter) then the country could easily sort out its economic troubles in a flash – just like the EU. Oh no, wait..!

Still, we in Britain do not have the same system of Government as the United States, so I’m sure we have nothing to worry about. Our economy is so safe in fact that our MPs are able to spend time on much more important business…

Deceived Once Again

Is the political and economic fraud of the United States deal on the debt ceiling fooling anyone? So asks Brandon Smith at Alternative Markets, who reveals why the agreement amounts to nothing.

The U.S. debt ceiling was raised by the machinery of Government. The GOP and Democrats struck a deal which, while a compromise, planned to lower state expenditure and reign in the debt and public deficit. Crisis averted, right?

Wrong. In much the same vein as the supposed cuts our Chancellor of the Exchequer, good old little George Osborne has (generally not) implemented, the U.S. deal raised the debt ceiling, increased U.S. debt and did not make actual cuts in U.S. expenditure.

The ‘cuts’ made in the deal were reductions in the increase of U.S. public expenditure – not an actual cut, just a decrease in the increase – or in other words United States state expenditure will increase, though at an ever so slightly slower rate. An historic deal!

Far from solving the United States’ dire economic problems, they have been put off for another dark day. Mr Smith continued:

The debt decision and the above mentioned dire indicators leave us with two inevitable consequences: One, our credit rating WILL be downgraded, by S&P certainly, followed by Fitch and Moody’s later on. Two, we are, without a doubt, soon to see an announcement from the Fed of a third QE. Both of these items WILL lead to the final abandonment of U.S. treasuries and the dollar by the East, and likely by OPEC, ending in stagflation. That is, if they don’t commit to a dump beforehand. What we are looking at is the turning point of the final phase of total structural debasement of the U.S. economy. This is it, folks. This is where illusions are lifted, lies are revealed, assumptions are squashed, and things start to get really ugly.

Meanwhile, as the problems stack up across the Atlantic, the Euro zone countries are lurching into the latest phase of the Euro crisis. News of Spain and Italy readying for likely default has sent the markets spiralling downwards, and the European Commission are flapping as the Euro begins to come undone.

It is likely the Eurocrats have another bailout up their sleeves, but, like the last, it will only put off the inevitable. There is only so long you can put off paying your debts – and for the United States, the EU and probably the United Kingdom too, that day is coming – and coming very soon.

Practice What You Preach

Greg Easterbrook of Reuters wrote a serious, if at times mildly amusing article about some proposals to raise taxes on the wealthy in the United States.

He noted that while rich individuals such as Bill Gates and Warren Buffett declare that the wealthy should pay more in tax, then they do not practice what they preach. Indeed, he says, Barack Obama falls into that category, earning considerably more than the average American:

If Obama is in earnest about wanting increased taxes on the wealthy, then he should send the United States Treasury $182,998. That’s the difference between his Form 1040 Line 60 (“This is your total tax”) and what he would have owed at the higher rate (plus limits on itemized deductions) he himself advocates.

So why doesn’t he tax himself more? The Form 1040, after all, only stipulates the minimum tax an American must pay. More is always welcome. Obama should write a check to the United States Treasury for $182,998.

This very much reminds me of a local debate that I attended just before the General Election. During questions from the audience, a local Methodist Minister stood up and declared that he had earned £18,500 for the previous financial year. He was happy to declare this he said, and had even brought his documents so he could tell us exactly how much tax he had paid, which he then duly listed.

Later, when he eventually got to the point (funny isn’t it how during questions from the audience, more often than not, those who raise their hand seem to feel the incredible urge to give us their long winded opinion rather than actually ask a question?), he said that he was very happy to pay that tax and he got good value for it. He went on to say that he wished he paid even more tax and would be happy to pay it for such excellent public services, etc…

That was his opinion and while I do not share it I did not have a problem with him expressing it in the public forum. My immediate verbal suggestion to him was that he make a voluntary donation to the Treasury. No doubt it would be well spent on some worthy cause I told him. This he did not like.

Click here to continue reading the article…

Time Is Running Out

The U.S. Senate and House of Representatives have until the 2nd of August to come up with a deal to extend U.S. debt ceiling beyond $14.3 trillion and avoid the very real possibility of default.

President Obama, the Republicans in the House of Representatives and the Democrats in the Senate have been arguing at length over how to make $3 to $4 trillion in savings over the next ten years. So far the Republicans have ruled out supporting Obama’s tax increases, with Reuters suggesting that revenue is the main sticking point between the two sides.

Much like the crisis economies of the Euro zone, the United States will be on the brink of default in just over a week. This is scary stuff. Alister Bull and Richard Cowan at Reuters remark:

With the world’s biggest economy set to run out of money to pay all of its bills on August 2, the window was closing fast for a “grand bargain” of spending cuts and tax increases in exchange for Congress raising the debt ceiling.

Financial markets are growing more edgy and U.S. banks and businesses are making contingency plans for the possibility of a debt default that would drive up interest rates, sink the dollar and ripple through economies around the world.

If the United States goes to the wall, it will be for the first time in its history and will also mean the loss of its prized triple A credit rating, with far reaching consequences for the world economy.

The US, like so many Western economies, has run up vast debts in past decades, due in no small part to the ever increasing financial burden of a bloated welfare state. It is not as though this problem has happened overnight either. George Bush, that supposedly evil, nasty, right-wing zealot was a prolific borrower and spender at the expense of the American taxpayer. Likewise, Barack Obama, who has been in office for a number of years now, has had plenty of time to get to grips with U.S. domestic spending – and yet here we are, only weeks away from a massive default and suddenly there’s a mad panic to rearrange the deckchairs on the Titanic.