Monday, August 8, 2011 – 10:00 a.m.
Standard and Poor’s downgrade of the sovereign credit rating of the United States was a long time coming.
For a country on an endless spending addiction, the U.S. deserves exactly what it’s getting.
And the Politicians just don’t get it.
The blame game is over.
The blowing of taxpayer dollars on any and every thing in sight is over.
The deficits resulting from the aforementioned reckless spending is higher taxes and severe cuts in government spending.
There’s no choice at this point.
Because the political blame game and gridlock is likely to continue, the government will ultimately have no choice but to in fact monetize a portion of the the skyrocketing national debt.
The resulting move will result in immediate inflation unlike anything seen in recent memory.
Expect at least one downgrade to AA.
But AA- isn’t out of reach.
Question: Are credit ratings relative or absolute as a scorekeeper of financial risk? In other words, do they grade on a curve? If every economic instrument on the world’s financial ocean is taking on water and our ship is leaking but the most seaworthy available, do we get a AAA rating?
For better or for worse (and it seems to be both), the downgrade is doing nothing to push investors out of buying treasuries. The Chinese are doing their righteous indignation thing, but their choices are limited since the only way to continue devaluing their currency and continue benefiting from that artificial prop to their manufacturing economy is to send dollars back to the states by buying debt.
Furthermore, investors don’t have a ton of options out there and continue to see treasuries as the relatively safe choice. If not invest in U.S. debt, then where? Portugal? Greece? France? Ireland? Iceland? Italy? Spain? An emerging economy that has development loans sitting on their balance sheets?
The stalwarts of the planet are no longer that and the emerging nations haven’t come close to reaching the major leagues of stable finances yet.
I suppose we could all just hoard gold and see how far we can inflate the price of that stuff. However, gold is starting to feel like housing in about 2004/2005.
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