US May Lose Its ‘AAA’ Rating - General * Europe * News * Story - CNBC.com
The United States may be on course to lose its ‘AAA’ rating due to the large amount of debt it has accumulated, according to Martin Hennecke, senior manager of private clients at Tyche.
“The U.S. might really have to look at a default on the bankruptcy reorganization of the present financial system” and the bankruptcy of the government is not out of the realm of possibility, Hennecke said.
Nor, thanks to out of control socialist spending practiced primarily by Democrats but enabled to some extent by Republicans, has it been beyond the realm of possibility for decades.
First, we bankrupted the Soviet Union, causing it to collapse. Then we bankrupted ourselves….
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Do they really think that the now-increased debt-to-revenue ratios are inconsistent with AAA, or is this a shot across the bow to warn against further bailouts? Could it be cover for Obama to raise taxes, chop the military, and yank us out of Iraq and Afghanistan pell-mell? “reduce spending across all sectors”… I’d swallow a military cut if it were part of proportional cuts of the entire government. Unfortunately that’s never happened before, so why should we believe it would it happen now?
Any way you slice it, the “Full Faith and Credit of the U.S. Government” is getting quite threadbare.
Over the past several years, we have had the tech/internet bubble, then the real estate bubble, then (quickly) the oil/commodities bubble.
In an attempt to see if I could make money instead of losing it, I have been trying to figure out what the next bubble is so I could get in on it.
Unfortunately, it is not one I can get in on.
It is the “Governments perform Miracles” bubble, with a dose of Obama.
He has been elected, and now they are bailing out everyone in sight - and the bailouts are not working. Now we are being warned that the US Gov’s bond rating will go down if they do not cut spending across the board (and bring home the troops, etc.)
Of course that will not happen (the spending cuts).
More over, at this point, we do not want it.
Look, while it will be dangerous, cause hardships, and more likely not have a happy outcome, this bubble is less sustainable than the oil spike.
Already people are making Zimbabwe jokes about the US.
So, think of it this way. If the light in your three light chandelier in the living room blows, you can change the bulb when you get around to it.
If the main incoming circuit breaker blows, the whole house is down. Once you reset it or replace it, you still have to fix all the little problems in the house - and you also have to find out why the breaker blew and fix that problem. You might even have to do that one first.
Well, the US is the main breaker for the world, there is no electrician to call, and the homeowner has no idea where the breaker is, let along how to tell if it only needs a reset.
Will they down grade the US ratings if we do not play along? Will Obama and crew make the correct choices? Should Bill, me and everyone else living in an urban or suburban environment have sold at the peak, sat on the money until the housing bubble burst, then bought our own private Idaho to ride out the large scale collapse?
Or will the withdrawal of American troops from around the world ‘improve’ our bond rating with our new partners, the Eurasian Caliphate, Greater Russia, and Sino-Hindic Greater Co-prosperity Sphere?
They impose fiat currency and ban private gold and silver currency, and you think there’s any faith left? The first is unconstitutional and the second arguably is. And fiat currency invariably, I think, has led to valueless currency. What “full faith and credit” were you thinking of?
That would be the worldwide consensus that the USA can service its debt in a timely and complete manner, thus the AAA rating. If people start to believe that the Treasury is so overdrawn that it won’t be able to make payments on its instruments, or even that the risk of that is high enough to warrant a downgrade, we’re all in serious trouble.
“Full faith and credit” is a legal term. (More readable definition, but less useful in this context.)
What the term boils down to is that the courts in any jurisdiction will enforce court orders and government acts, regardless of where they originated. Case in point, the courts can force the exchange of value (from the federal government) for these bank notes (from the citizenry)…except that they don’t anymore. For decades after the abolition of private currency, the federal treasury notes were backed by precious metal with the “full faith and credit” clause. Later both the precious metal and the clause disappeared, leaving us with pure fiat currency. IIRC*, federal debt to either foreign nations or foreign creditors in general is still guaranteed, but (to re-reiterate) the paper currency is backed by nothing.
Fiat currencies are a confidence game, in both senses of the word. The one that matters here is, so long as people have confidence that they can continue to trade their slips of paper for goods, the system will continue to work. Once confidence falters, the paper is worthless.
Currency backed by gold or other valuables, and further backed by a meaningful “full faith and credit”, doesn’t need this “confidence”. If anyone doubts that his slip of paper is worth anything, he can trade it in for gold.
More later if I’m awake, alert, and have a few moments; see below.
* Which I probably don’t. Several bad-baby nights in a row, strung out on caffeine, and writing this in between chasing after the little brat. Yes, that’s a recurring excuse lately. With luck it’ll settle down before I prematurely age into an 80-year-old man at 45.