United States a Deadbeat?

April/19/2011 16:58PM
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Standard and Poor, one of the rating agencies that kept rating mortgage backed securities high when they were essentially worthless, has warned the United States that they are about to lower the USA credit rating if improvements aren’t made.

Is this a serious problem? Depends on who responds to that question? To Obama and his spend and tax administration, absolutely not. They can get our credit back in line by taxing the rich. And, they can even spend more and increase our entitlement obligations through Obamacare. No problems.

To Paul Ryan, it is a major problem and we need to address it with realistic plans. Plans that will not affect me or my fellow seniors now, but the folks in their 50’s will be given less by their government.

Economists say it’s a problem, some say not. Probably depends on whether they favor Obama or not. Those who say it is a big problem contend that not fixing it in a timely manner will result in inflation, devaluation of the dollar, higher interest rates, and will extend the recession.

Those who say it’s not, cite the UK which did get downgraded then got their AAA rating back. But, the UK cut their debt and got the percentage back to the number required to get their rating back. To pay higher interest on our loans all we do is print more money. Since the world needs dollars there is a ready market for dollars. Of course, the more dollars we print, the less the dollars in circulation are worth.

What happens if the world decides not to trade in dollars? What if the US has to take dollars, which are becoming worth less, and buy another currency worth more, to pay our interest on our debt? What if the world stops needing to buy dollars to buy oil, and there is little market for dollars?

If you own stock in a corporation and S&P lowers the rating for that company, do you think of selling your stock? What does it tell you about the company? That management is weak? That dividends are going to be cut or eliminated? That the stock price is going down?

What will happen with this warning? Obama has the numbers. The majority of Americans want taxes raised on the rich. But, as I will show in a later blog, if he took all the money from all the higher income taxpayers, he would still lose his credit rating. He is appealing to emotional selfishness of the average taxpayer. Sure, tax the rich, let them pay, but keep my goodies coming.

The best outcome for this whole thing, in my opinion, is for the downgrade to come. Right in the middle of the next presidential campaign. Then we can see what happens. Interest rates jump, credit tightens, housing takes another hit, unemployment jumps, inflation jumps, and the reality of living beyond your means is clear to all. Then, and only then, will the willingness to sacrifice hit all of us. This is not the kind of problem Obama can sweep under the rug. This is not a George W. Bush problem. This is an Obama problem. He created it and he will not make any effort short of raising taxes to fix his problem.

He is on record saying America did not become great until the government started handing out freebies in 1965. The USSR handed out freebies until there were no freebies left to pass around. Our cupboard is getting bare. Standard are Poor is in the business of evaluating cupboards. They see our problem. Everyone one of us will see it someday. It will not be pain free.

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