American Credibility

The talk of the weekend was the late day downgrade of the American credit-rating by the S&P. Then the finger-pointing started in Washington as our elected elite were shocked and surprised that the reality of their poor choices had finally come home to roost. So, the scramble for political survival begins in all areas of the executive and legislative branches. Never mind the truth, there is little or no place for the truth when it comes to political survival. Washington has proved that point time and again throughout our history.

Standard & Poor’s executives made the explanation quite clear for anyone who cared to listen to it. They made the downgrade as a cautionary step to say that they saw nothing in the recent actions of our leadership to effectively gain control of spending nor did they see any effective actions which would reduce the outstanding debt already on the books. Washington can spin that explanation all it wants but it seems very clear and straight-forward.

The Treasury immediately pointed out that something was amiss in that no such action had been taken in prior times when the government raised the debt ceiling and borrowed more money. So why was a downgrade taken this time? Apparently, the treasury failed to notice that in times past the rationale between the debt accumulated on the books was not running dangerously close to the total annual gross domestic product (GDP) of the nation. In other words, never has our debt to assets ratio been so tight and never has there been such a real threat that the debt figure would surpass and exceed the assets of the country. That reality is upon of as the Obama Administration is projected to add 9 trillion dollars in spending to the national debt in the first four year term. If this projection is true, and it likely is, the national debt will begin to close in on the 20 trillion dollar figure. That figure will equal or exceed the GDP. In effect, when this occurs, our country is bankrupt which impairs both our ability and our desire to repay our debts.

The President and his side of the aisle would like Americans to believe that this downgrade is nothing more than a product of the shenanigans of the Republicans and the Tea Party ilk. That excuse is lame to say the least. America, even if the economy rebounds on the short term, is not going to see double-digit growth in the GDP any time soon. In fact, we will be very luck to sustain a high single digit growth in an upside economy. Given the current rate that government regulation is growing, that possibility also becomes more of a dream than a reality. In July of 2011 alone, the Obama Administration added 9 billion dollars in regulatory costs for American businesses. That projects to a rate of over 80 billion in additional costs caused by simply the government over-regulating the business sector. Many business are finding that the level of regulation in America is not only making it undesirable to base business here but, in essence, it is unaffordable. Given that attitude and the attitude of this administration to continue expansion of government regulation, a noticeable positive growth in GDP is highly unlikely.

This S&P downgrade is a shot fired over the bow that is the ship America. It is a warning to say “get your financial house in order.” In the past, we have had the ability to either offer our debt to investors or to auction our debt on the global market to generate the “borrowed capital” necessary to continue operating at the current spending levels of government. With downgrades in the credit standing, the monitoring agencies are evaluating two aspects of the government financial situation. One is our desire to pay which is well stated in that our government is required by current law to pay our debts. Two is our ability to pay and is very key to the formula. As our government continues to spend, 43 cents out of every dollar spent is now “borrowed capital”. Our national debt as a result of a 1.5 trillion dollar annual spending deficit is piling up at an alarming rate. There is nothing to indicate that this is a temporary condition and no indication that any effort is being made to reduce the accumulated debt. Although it is the law that we pay our debts, when we run out of money and cannot borrow anymore, then the old rule of thumb that you cannot get blood out of a turnip comes into play. We default on the debts owed to other countries and we also default on the debt owed to American investors which comes from retirement and pension accounts, 401K’s, etc. Essentially, while we are going broke as a government, we are taking the American worker/taxpayer down with the ship.

We have too many elected officials in Washington today who believe “big government” is the answer to every that challenges our country. They actually want the taxpayers and citizens to look to the government for all their needs. The Obama Administration has already grown the size of the federal government by a factor of 17% in just over three years. Government is like water, it will occupy whatever space you place it into. Obama appoints more and more czars to micro-manage more and more aspects of our lives. These czars answer to no one but him and earn large government salaries along with creating sizeable staffs to carry out their bidding. The EPA has been in a growth mode from the day of its inception and it continues to grow with no real check on what is realistic in terms of our environment and the controls and regulations placed on it.

As our credit runs into downgrade, the costs of debt service increases and on a sizeable factor which in turn leads to more shortfall in our ability to pay and calls for more taxes on the citizens to cover the debt load. Enduring that situation would be acceptable if there was an on-going effort to truly reduce spending and thus decrease the national debt. There is no such effort and likely never will be until it is too late. As credit is downgraded, other countries and investors want greater paybacks for their risks because their risks are higher. Eventually, the risks outstrip the return and all effort to take any risks drops to zero…a place at which there is no available money to borrow. At that point, if you pay your bills as directed by law, then all you can do is print money…not good for the value of money and eventually will cause it to be worthless to the public. We are on that path at present with no plan on the books to get off of it thanks to the efforts of our elected officials to simply kick the can down the road to the next generation.

America, as a public, should be outraged that those we have elected to office have put us into this situation we currently face. The politicians point to the pressures of entitlement legislation such as Social Security and Medicare. They ignore the fact that these two programs took in 70 billion more dollars in 2010 than they spent even in light of the estimated over 90 billion dollars of fraud inherent in the Medicare Program. Our government threw that 70 billion dollar surplus into the general fund and spent it as a function of “discretionary spending”. This is reckless and irresponsible to say the least and it is the primary reason both of these programs are projected to be “insolvent” by 2025.

The fact of the matter is that Washington wants Americans to ignore that it spends over 600 billion dollars a year in “discretionary spending”. This figure matches the annual defense budget almost dollar for dollar yet Washington could not find 29 billion dollars to pay our debt service out of this 600 billion dollars. They couldn’t find it because no one wanted to see any cuts in the pork-barrel and earmark spending which they had put in place no matter how ridiculous or wasteful it may be. The easy route is to continue borrow money, continue to spend, and eventually place higher and higher tax burdens on the American public. That is the only solution Washington can come up with as there is no such thing in Washington as “enough money” and never will be.

The President will speak today and he will blame the right and the Tea Party for these woes. He will attempt to wash the White House’s efforts in the recent debt ceiling as a lily pure effort to reduce America’s problems. He will call this situation everything but what it really it and he will identify every possible cause but the real one…runaway, rampant, out of control spending by an over-bloated federal government. This is predictable even without a press release beforehand.

America is not in the best position but we are still in a position to turn this situation into something positive. This situation is awaking a sleeping sector of our population who for so long has simply gone along with everything the government has fed us to justify all the social good and dreamy work that is being done with money that we, as a nation, do not have and likely never will. We are waking to the truth and we don’t like what we see or hear. It is truly a time for hope and change….hope and change that will take us far, far away from the direction in which we are currently headed as a nation.

God Bless America!

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