Friday, April 6, 2012

Another U.S. Downgrade

     On Thursday, April 5, 2012 the small credit rating agency of Egan-Jones downgraded the United States to AA from AA+. Egan-Jones foreshadowed the downgrade last Summer by S&P, when for the first time in history, the U.S. rating was downgraded from its pristine AAA rating. The reason cited for this downgrade is continued non-action on dealing with the burgeoning debt. For the first time since World War II, U.S. debt has exceeded 100% of our GDP. The Democrat-controlled Senate has not passed a budget in over 3 years and although the President has submitted two budgets in the last two years, no one in his own party, let alone any Republicans,  have voted for either one. The Republican-led House, behind the leadership of Paul Ryan, has passed budgets each year since they won control of the House in the 2010 mid-term elections. These budgets have only gained scorn from the President and his party. It's obvious that the President and the rest of the Democrats want to keep spending without the restraint of a budget.
     The Federal government is borrowing 40 cents of every dollar it spends. The Federal Reserve holds bond auctions to sell that debt to investors. As a result of quantitative easing programs, the Federal Reserve is now purchasing nearly 60% of the bonds it sells. There is also a waning desire for U.S. debt,  even from China, which has begun to divest itself of U.S. debt. All this buying of our own debt has expanded the Fed's balance sheet to a record level of over 7 trillion dollars. How long do you think you could sustain your finances if you were borrowing 40% of what you spend and 60% of that you were loaning to yourself by printing your own money and buying your own bonds? This, of course, is a recipe for disaster and it is only getting worse with each passing day.
     It's not too late to right the ship, but the Federal government has to divest itself of unnecessary spending. And this can't be achieved by taking money out of the private economy through higher taxes. There are literally thousands of government programs that can be cut that would not affect the health and welfare of the nation. Just look at the 10's of billions of taxpayer dollars that the President has given to "green energy" companies run by his cronies. Most people have heard of the bankrupt Solendra, which received half a billion dollars and then went bankrupt. But there have been at least half a dozen others, some of which received up to 2 billion dollars, that have gone bankrupt. Investing in companies run by the President's donors in an industry that doesn't yet exist, is not the role of the Federal government.
     If the adults don't get control of the Federal government's purse strings, we are headed for forced cuts which will make the Greek austerity look like high living. We have already seen a preview of the violent reaction that this type of austerity will cause, when this week in California students rioted over higher tuition. Get ready for more of this kind of behavior as the crack that is government spending is yanked away from an ever-increasingly dependant populace.

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