What’s In A Letter?
US Treasury bonds may be in danger of losing their AAA rating. While not quite relegating T-bonds to the junk category, this would nevertheless be A Very Bad Thing.
To wit: the US can only sustain its ginormous budget deficit and national debt (the accumulated annual deficits, a whopping -$11trillion or so) because the rest of the world, and China in particular, is confident that the American economy will continue to grow and that America will pay its dues – which is has always done. So far.
Cue large problem numero uno – the US is currently only paying off the annual interest accrued on the debt, without paying back the stock of borrowed capital itself.
This has been going on for a long time. Both the Democrats and Republicans are culpable in spending far more than the federal government takes in. Neither party is willing to admit without equivocation that it is unaffordable.
Cue large problem numero dos – this can only continue for as long as the rest of the world lets it. If China wanted to, she could cause the collapse of the US in an instant. All that is needed is for her to flood the market with her reserve $ holdings. Fortunately, China realizes that this would also obliterate herself and the CCP is nothing if not patient. Rapid economic growth is enough to make the Chinese value stability above all else at the moment, but that will not last indefinitely.
Russia, on the other hand, is just about crazy enough to fantasize about taking down the US, no matter the cost to Mother Russia.
Through spending habits that put even Sir Elton John to shame, President Obama is imperiling the US.
Who’s to say that’s not the plan?
May 13th, 2009 at 11:17
Nice Piece!
The US is indeed having difficulty selling debt instruments on the international market. Even the Chinese are getting concerned.
When Obama can’t sell these to cover the deficit, his only option will be to increase the money supply. This will lead to very rapid inflation – some of which we are already seeing. Inflation will drive up interest rates. Higher interest rates drive up unemployment.
This is a well-worn path, though. Jimmy Carter proved that this methodology of managing an economy is a disaster – particularly for the American middle class. Obama surely never studied the Carter years.
For a list of similarities between Carter and Obama – and why Obama’s results will be far worse that under Carter, you can hit:
http://firstconservative.com/blog/political-humor/political-humor-jimmy-carters-disastrous-legacy
May 13th, 2009 at 15:44
How about the other side of the coin?
Last Thursday, the jobless claims numbers came out and everyone was semi-gaa-gaa over the fact that it had “shrunk” to 539,000..from what?
So, as my working-stiff existence permits, I want to delve into the historical posts on the internet and possibly some hard stats on the BLS site to compare how this number compares to data when GW was in office — especially after 9/11.
I am not talking a simple recounting of numbers that were consistently under half a million per month, but the screaming, BDS-ridden, mantras about how “Bush lied and people..well..go laid off” that cite shocking and appalling trends. You know like 200K for the past month and (as I remember seeing) “Bush’s policies lead to 19,000 losing their jobs last week. (Hmmmmmmm, lesseeeee. Four-point-three-three-three times 19,000 gives us what?)
Anyway, when I come up with this compendium, I’ll post back here with links so you can show them how this steaming pile in DC is screwing up our economy and our lives.
(Note: cross-posted on The Illustrated Conservative site.)