USA is Going Broke Part I
If you want to make yourself ill, stop and think about the deep economic and financial hole the politicians have dragged the United States into.As of Friday, (Jan. 11, 2008), the U.S. government's national debt was worth US$9 trillion 200 billion devalued dollars, (and that number excludes billions in unfunded future entitlements). And don't tell me that we "owe to ourselves," as sly Keynesian economists used to claim. Over 55% of the debt (and the interest on it) is owed to foreigners - a major share held by the government of Communist China. How's that for capitalistic irony? So Nikita Kruschev was wrong when he predicted Communism would bury us - it's buying us instead.If you've been reading the A-Letter, you already know the sad facts about the shrunken dollar, the bloated federal budget, the huge trade deficit, the limitless costs of entitlement programs, plus billions squandered for an unnecessary war. And with all this financial disaster around us, most of the presidential candidates, (in what's left of both political parties), are engaged in a frantic bidding war to buy votes. They're buying and selling with unrealistic promises of more billions in unfunded tax cuts and gigantic new spending programs.Talk about the need for hope? The need for change? Brother, can you spare a trillion?And here comes the supreme irony...The major credit rating agency, Moody's, just told the world that the U.S. is at risk of losing its top-notch, triple-A credit rating. Moody's will demote the U.S. within 10 years unless the government takes radical action to curb soaring healthcare and social security spending. The Financial Times reports: "The warning over the future of the triple-A rating - granted to U.S. government debt since it was first assessed in 1917 - reflects growing concerns over the country's ability to retain its financial and economic supremacy." Should we be upset by this dire warning from the venerable old Moody's? Well, the astute Mike Burnick, our Sovereign Society Global Markets Analyst, points out that it was Moody's Investors Service, Standard & Poor's and Fitch Ratings that played a leading role in creating and sustaining the false boom in U.S. sub-prime mortgages. Mike notes: "From 2004 to 2006, these Big Three rating agencies doled out investment-grade ratings on nearly US$1 trillion worth of mortgage-backed securities." And then most of that dubious paper turned into junk - a big factor in the pending recession.Once again, Moody's is wrong. Moody's says the U.S. has 10 years before economic logic will downgrade the American government as a bad investment. Ten years indeed - we'll be lucky if we have ten months before the inevitable crash...
If you want to make yourself ill, stop and think about the deep economic and financial hole the politicians have dragged the United States into.As of Friday, (Jan. 11, 2008), the U.S. government's national debt was worth US$9 trillion 200 billion devalued dollars, (and that number excludes billions in unfunded future entitlements). And don't tell me that we "owe to ourselves," as sly Keynesian economists used to claim. Over 55% of the debt (and the interest on it) is owed to foreigners - a major share held by the government of Communist China. How's that for capitalistic irony? So Nikita Kruschev was wrong when he predicted Communism would bury us - it's buying us instead.If you've been reading the A-Letter, you already know the sad facts about the shrunken dollar, the bloated federal budget, the huge trade deficit, the limitless costs of entitlement programs, plus billions squandered for an unnecessary war. And with all this financial disaster around us, most of the presidential candidates, (in what's left of both political parties), are engaged in a frantic bidding war to buy votes. They're buying and selling with unrealistic promises of more billions in unfunded tax cuts and gigantic new spending programs.Talk about the need for hope? The need for change? Brother, can you spare a trillion?And here comes the supreme irony...The major credit rating agency, Moody's, just told the world that the U.S. is at risk of losing its top-notch, triple-A credit rating. Moody's will demote the U.S. within 10 years unless the government takes radical action to curb soaring healthcare and social security spending. The Financial Times reports: "The warning over the future of the triple-A rating - granted to U.S. government debt since it was first assessed in 1917 - reflects growing concerns over the country's ability to retain its financial and economic supremacy." Should we be upset by this dire warning from the venerable old Moody's? Well, the astute Mike Burnick, our Sovereign Society Global Markets Analyst, points out that it was Moody's Investors Service, Standard & Poor's and Fitch Ratings that played a leading role in creating and sustaining the false boom in U.S. sub-prime mortgages. Mike notes: "From 2004 to 2006, these Big Three rating agencies doled out investment-grade ratings on nearly US$1 trillion worth of mortgage-backed securities." And then most of that dubious paper turned into junk - a big factor in the pending recession.Once again, Moody's is wrong. Moody's says the U.S. has 10 years before economic logic will downgrade the American government as a bad investment. Ten years indeed - we'll be lucky if we have ten months before the inevitable crash...
USA is Going Broke Part II
As I mentioned yesterday, thinking about the state of the U.S. economy right now is a very efficient way to make yourself ill. After all, politicans and bad policymakers have spent our country into an economic hole. Recently, the rating agency Moody's commented on the United State government's lack of fiscal responsibility. They're apparently threatening to drop the United Stats' top-notch, triple-A credit rating within 10 years unless the government takes radical action to curb soaring health care and social security spending.Moody's warning appears to be based on when U.S. federal budget deficits would begin to spiral upward still more. But baby boomers are already beginning to retire. Soon millions will be demanding their Social Security and Medicare benefits. Here's the truth - the costs of taking corrective action are spiraling out of control right now. And it will only get worse. Meanwhile, Moody's is one of the three major accounting firms that got into deep trouble recently for giving good marks to Wall Street's sub-prime securities. Top Wall Street firms actually paid these rating agencies for their audits. Thus, the rating services were caught in a conflict of interest. Mike Burnick notes that "...the essential conflict," according to former Securities & Exchange Commission chairman Arthur Levitt, "is they [ratings agencies] are being paid by the people that they rate, they are working with the people they rate.''Notwithstanding the recent unreliability of Moody's and the other rating agencies, the truth is that the American government is very close to bankruptcy. The final reckoning day will come much sooner than 10 years, when China, Japan, Singapore and all the other investors stop propping up the U.S. Then the game will be over - with a resounding crash. When that happens, (and in wont take a decade), U.S. government bonds and Washington's credit rating will be worth little more than those piles of sub-prime mortgages stacked on the shelves of UBS, Merrill Lynch, Credit Suisse, Citibank and Countryside's new savior, Bank of America. Then who will bailout profligate America?
As I mentioned yesterday, thinking about the state of the U.S. economy right now is a very efficient way to make yourself ill. After all, politicans and bad policymakers have spent our country into an economic hole. Recently, the rating agency Moody's commented on the United State government's lack of fiscal responsibility. They're apparently threatening to drop the United Stats' top-notch, triple-A credit rating within 10 years unless the government takes radical action to curb soaring health care and social security spending.Moody's warning appears to be based on when U.S. federal budget deficits would begin to spiral upward still more. But baby boomers are already beginning to retire. Soon millions will be demanding their Social Security and Medicare benefits. Here's the truth - the costs of taking corrective action are spiraling out of control right now. And it will only get worse. Meanwhile, Moody's is one of the three major accounting firms that got into deep trouble recently for giving good marks to Wall Street's sub-prime securities. Top Wall Street firms actually paid these rating agencies for their audits. Thus, the rating services were caught in a conflict of interest. Mike Burnick notes that "...the essential conflict," according to former Securities & Exchange Commission chairman Arthur Levitt, "is they [ratings agencies] are being paid by the people that they rate, they are working with the people they rate.''Notwithstanding the recent unreliability of Moody's and the other rating agencies, the truth is that the American government is very close to bankruptcy. The final reckoning day will come much sooner than 10 years, when China, Japan, Singapore and all the other investors stop propping up the U.S. Then the game will be over - with a resounding crash. When that happens, (and in wont take a decade), U.S. government bonds and Washington's credit rating will be worth little more than those piles of sub-prime mortgages stacked on the shelves of UBS, Merrill Lynch, Credit Suisse, Citibank and Countryside's new savior, Bank of America. Then who will bailout profligate America?
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