T Nation

USA to Lose AAA Credit Rating?


#1

http://www.bloomberg.com/apps/news?pid=20601087&sid=au5M0WphL81g&refer=worldwide


#2

If you kept borrowing money you couldn't pay back your OWN credit rating would go down. Same goes for countries. Learn to garden, hunt, fish, and raises chickens you may need it someday.


#3

"Itâ??s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term"

Christ Almighty. The "medium term"?? Our administration is applying "deficit debt repayment"??? When your credit is threatened because you are ALREADY at an unsustainable debt level, do you say "I'm going to cut my deficit spending so I approach bankruptcy at a sustainable level"? NO. You say, I'm going to sell off my assets to cut the Debt to a sustainable level, THEN I'm going to cut spending to a level equal to what I have--in other words no deficit spending, only balanced spending. I really hope I just misunderstood the article.

God help us all.


#4

Guys, we are witnessing a paradigm shift. China will soon introduce a gold-backed Chinese Yuan. They will offer Chinese gov't bonds in this gold-backed currency.

Now, choose between investing in THAT debt or in the debt of a country that is printing money like McDonald's uses napkins.

Our dollar will collapse. We won't be able to repay even interest on our debt since the dollars won't buy too many gold-backed Yuan. Our government will declare bankruptcy; it'll have no choice.

Expect a military dictatorship, severe price controls and rationing, and then concentration camps for 'incipient terrorists' (which Obama advocated today in a speech).

Oh, well...who is John Galt?


#5

"Watch their moves toward creation of the Chinese yuan as a global reserve currency. Watch their simultaneous moves away from the USDollar and toward gold for reserves management. The merger of the two important strategic initiatives is a gold-backed yuan currency. In fact, that is precisely what was stated openly by Zheng Lianghao, managing director of the World Gold Councilâ??s Far East division. That news came out this week. The Chinese are clearly the spearhead to dethrone the USDollar as global reserve currency."

http://www.marketoracle.co.uk/Article10817.html


#6

The current budget reportedly has to borrow 40 cents for every dollar spent.

As an analogy for illustration, that is like a person with $60,000 annual income who is already far in debt deciding to budget $100,000 for spending this year, while adding $40K to his debt.

With absolutely no plans of any time in the near future instead spending an amount less than income, so debt can be reduced.

And in fact planning to continue such spending far in excess of income for the next decade to come at leaat, with no plans on how the trend might be reversed -- paying down debt -- after that.

Actually it's even worse, as this individual might perhaps enjoy a greatly increased income in the future (perhaps: depending on the case that could be possible.) But it is unreasonable to expect US Treasury receipts to increase so vastly, as increasing tax rate at some point does not yield greater income.

Reason being, for example suppose one business owner is considering expanding his factory or opening another, and another is considering opening another store . Which would, if successful, create revenues and employment.

But here's the thing: if these moves are successful, most of the money will be taken away in taxes anyway. But if they fail, the owners are out the money straight from their own pockets.

So at some point higher tax rates will cause them to decide not to take the risk to try increasing their income.

Additionally many individuals can modulate their income by adjusting hours worked. For example I have a friend who is an ER doctor who not only specifically stated that if Obama was elected he would cut his income below the threshold affected, but he actually heavily cut his spending in advance of the election so as to be prepared for that. And he has now cut his hours worked. Doesn't feel like busting his balls to have it taxed away. He's not alone.

So if anyone thinks -- as I suspect Mr Obama does -- that the problem is fixable by vastly jacking up tax rates, that is in error. I think it unlikely that government revenues can be vastly increased. While I cannot prove it, I expect they are approximately optimized already.

Fact is, spending more than one brings in a given year means a future time of having to spend less (when not including debt paydown in the sum) than one brings in. However the US Government operates in a false belief that this is not so for them.


#7

lol. No one is going to go back to raising chickens- we've gotten way too good at farming as it is. Oh haay- what if we stopped subsidizing pointless markets and put some value back into our economy through goods that actually made it to the market... maybe we could even sell them overseas like that one China country does.


#8

if you can't afford gas to run the tractors...

Shrug. I could pack up and be working in China (or any other country for that matter)next week if I wanted to. Having all that useless graduate school funds laying around would be a bummer though. But at least I'd have a huge supply of rolling papers.

I wonder how the medical tourism economy would fare, i'd assume its a growing trend for upper middle class Chinese as well.


#9

x2.

even having a good/detailed book on how to laying around would work in a pinch. at least for gardening and animal raising, getting that stuff set up quickly and running is not that hard.

really need get some bow training in though. then i can live out my Rambo role playing fantasy as well.


#10

If you have a AR you could get one of these :http://www.pse-archery.com/prod.php?k=55444&u=01135


#11

Government Bonds are "safer" then corporate or municipal bonds because they paying entity cannot go bankrupt. That was always the expectation and perception. That may change.

It is possible that another country could be perceived as a safer and more trust worthy entity to repay debt obligations. China needs massive legal and governmental reforms before the wealthy nations and individuals will trust them with the really large percentages of wealth that is held in the US. They are years away from that. Trust and legal recourse are as important as a good deal and yield, as Chrysler bondholders recently found out.

Previous administrations, Democrat and Republican were pragmatic about issues and realistic about the economy. With the exception of Carter, the executive branch was always viewed as a wise steward who viewed the business of America as business, and did what it needed to do to foster growth. That growth created a standard of living for the citizens, and as money allowed, engineered many social programs for those who couldn't keep up for one reason or another. All in all a smart and safe place to invest, with a good legal system and property rights that were enforced whether you were poor or wealthy. That earned your debts a triple edged rating.

In other countries you could lose everything if the ruling power didn't like you and you fell out of favor. In the US, you had rights and they could be protected in court. Put your money into property and you got a deed or a title and you owned it. Not so in many other places, particularly if you were in a different party, tribe or social caste.

Then came Obama....

The Obama administration ran against George Bush and complained about his spending, then quadrupled it. The media yawned. He nationalized auto companies and banks and violated the rights of bondholders and shareholders who provided the capital. The Democrats cheered. He proposed even greater spending on entitlement programs. Much like a King Louie providing both bread and cake to appease the peasants, despite a bankrupt treasury. The people cheered, the media ignored it and those outside investors who have been paying for it began to take notice. The real nail in the coffin is the environmental laws that were just passed to placate a special interest group and those who have a religious belief in an unproven scientific theory. Make no mistake, if allowed cap and trade will derail the economy right into a depression. And energy independence...forget about it. Oil and Gas is all around us but we are to naive and frightened by activists to drill for it.

We are now faced with debt that will drown the economy. As a percentage of GDP, the number that really matters, the ratio is astounding. We have a crisis in confidence in the leadership that is holding back domestic spending and is stopping the flow of foreign capital. We have dismissed allies and embraced enemies. We have decided it is better to make nice with terrorists, less we offend them, then to frighten them into retreat with certain justice, applied with the prejudice of righteousness.

Will we lose our AAA credit rating. Almost certainly if we remain on the present course. Obama has lulled the naive into complacency with his oratory skills. Those with business sense and a knowledge of history are far less complacent and trusting at this point.