So argues Bill Wilson, Americans for Limited Government:
[…] relative to other nations whose credit is rated Triple-A, we are fiscally irresponsible. The size and scope of America’s rapidly escalating $14.3 trillion gross national debt coupled with a complete lack of willingness to rein it in, if it continues to grow for long, will not warrant a perfect credit rating.
But isn’t the U.S. special and have more room to maneuver on sovereign debt? “Although we believe [the] strengths [of the U.S. economy] currently outweigh what we consider to be the U.S.’s meaningful economic and fiscal risks and large external debtor position, we now believe that they might not fully offset the credit risks over the next two years at the ‘AAA’ level,” said S&P’s credit analyst Nikola G. Swann.
That means a full credit downgrade is now substantially more likely in the next year or two. And judging by the stock market’s reaction to the news, such a development will not at all be good for the U.S. economy. In truth, it will make the housing bubble popping look like a pimple; a credit downgrade will likely set off a run on dollar assets. Why?
Because, really, a downgrade is long overdue. S&P notes that the current Triple-A rating “reflect[s] our view of the unique advantages stemming from the dollar’s preeminent place among world currencies.” That means one of the only reasons we have not already been downgraded is because sovereigns around the world stockpile dollars as the world’s reserve currency as if it were as good as gold.
Such a status for the dollar has previously allowed the Federal Reserve to print seemingly limitless amounts of money to purchase everything from U.S. treasuries (it has $1.37 trillion worth) to mortgage-backed securities (it still holds $937 billion worth from the 2008-09 bailouts) — all with limited, although still measurable impact upon inflation.
This is playing with fire. The only thing holding up this house of cards is perception — the faith that other nations will continue to trade in dollars. And what we are learning now is that simply the fact that the world has done so for the last 60 years is not enough to prop up the system, as evidenced by S&P’s very real threat of a downgrade.
The time for half-measures has long past. Elected leaders have not presented any budget to meet the challenge of an imminent credit downgrade. The Obama proposal will never balance the budget, and the House-passed budget will take 26 years to do so.
Make no mistake, if we cannot balance the budget sometime soon, we are in trouble. With a $14.2 trillion gross national debt that will be larger than the entire economy by year’s end, growing to over $25 trillion by 2021, soon our obligations will become too large to refinance, let alone be repaid.
The threat of a downgrade is now, meaning we don’t have 26 years to balance the budget. Members should Congress should use the distress of this news to shock them into action, namely by adopting the Balanced Budget Amendment proposed by Senator Orrin Hatch — before it is too late.
— To which Timmy Geithner replies, posh. Your math is political. Your numbers extreme. Your ledgers inky ideologues. And this Administration will not be held hostage to unclean demands.
Move along. Nothing to see here.
Insert mental pic of Geithner as Baghdad Bob here →
I’m pretty sure the budget passed by the house will be followed by something to reform social security, further reducing long-term expenditures. I think serious legislation to keep the dollar from further eroding might be enough to keep the dollar in play. However, I don’t expect either to pass with the current Senate and President.
Timy TaxCheat, like most of the clueless individuals in this administration, has no fucking clue what he’s talking about.
But, HOPE!
We are all fucked…:-(
“Geithner as Baghdad Bob”
Would to God I had Photoshop skillz – that would be a fun one to do…
This is one of the most important truths facing this nation.
This is playing with Cloward and Piven. As has been intended since the Federal Reserve Act.
Er, where’s this 14T number always coming from? What’s too large to refinance are all the other Very Big Negative Numbers. And who said anything about ever repaying any of it?
Geithner <spit> came up as a mention in a thread on some other site, and one commenter posted (sarcastically) “Geithner is in the house!”
There was only one possible response: “Hide the silver.”
Bill Wilson is very correct, the time to act is now. So, once again.. How will a balanced budget amendment help? It will pass the buck to the states for federal spending and will take years to ratify, if it ever is ratified. Nothing wrong with a balanced budget amendment and it would sure be nice if we had one in place right now, but we need fast action and a BBA is no way to get that. By the time we get that barn door closed the horse will be long gone.
Again, nothing wrong with a balanced budget amendment and I’d certainly support it, but under the circumstances I’ve got to think that championing a BBA as a solution to our current problems is just the political establishment giving the can one more good kick.
Something else to consider: Why is it that it’s the Jim DeMint and Orrin Hatch contingent, the guys who’ve been in Washington since dinosaurs ruled the earth — Big Al Simpson — who are suddenly in love with a BBA? These guys have been part of the problem for years, do you really think they’ve all reached an epiphany and want to curb their big-spending ways? And if they have had an epiphany why not take the direct route to balancing the budget and Just. Do. It?
Frankly, I doubt they have any intention of voluntarily curbing their spending. They’re just posturing to avoid blame when the whole shaky fiscal house of cards inevitably comes crashing down. We are so screwed….
Hatch has been trying for a BBA since he entered Congress. He came within 1 vote in the House at one point.
DeMint has been a champion of the Tea Party and has taken a lot of grief from the GOP establishment for it.
I’m kinda stuck with the Kevin Bacon from Animal House “All is Well” for Timmy G, but then I start wondering who to cast as Neidermeyer salivating over the butt womping in the initiation scene and it all goes down hill from there.
Might be time to retry that BBA in the House.