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Do not trust Republicans and do not trust Democrats. Do not trust Obama and do not trust Boehner. Do not trust any of them

Don’t Trust Them



On Tuesday a shock-wave ran through the world's markets. It was set off by an advisory issued by one of the premier credit rating companies regarding the long-term creditworthiness of the US federal government. This is how the Wall Street Journal reported it:

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“Standard & Poor's Ratings Services Inc. cut its outlook on the U.S. to negative, increasing the likelihood of a potential downgrade from its triple-A rating, as the path from large budget deficits and rising government debt remains unclear.”
The question is not only what took Standard and Poor's so long to issue the warning, but why they did not go further. How can a respected outfit like S&P still maintain triple-A rating for the US government is beyond one's ability to comprehend. At $14 trillion the public debt of our government is almost 100 percent of GDP. Its long-term unfunded liabilities are – even by relatively conservative estimates – well in excess of $100 trillion. There is simply no way our government can make good on such obligations. Any company with this kind of balance sheet would long have been in liquidation proceedings. Anyone with eyes should be able to perceive the obvious fact that the US federal government is living on borrowed time and is for all practical purposes bankrupt. The only reason why our currency has not yet collapsed is because our largest creditors still keep buying Treasury paper. They are doing it not because they think Treasuries are a profitable place to park their money, but because the way the world's financial and economic system are set up leaves them with no alternatives. Holding ever greater quantities of loosely printed dollars which they keep accumulating as a result of mountainous trade surpluses, they keep purchasing US government bonds knowing that if they stopped the value of their dollar holdings would collapse. They are in a bad fix indeed. Since they really have no other choice, they keep acquiring our debt while pleading with our government to put its fiscal house in order. To no avail. Our political class has clearly shown that it is unwilling to take any serious steps to address the predicament. No anomalous situation cannot continue indefinitely and this one is no exception. It is only a matter of time before this state of affairs comes to an end and the whole house of cards comes crashing down. S&P and other agencies of its kind should know this. They should know that in real terms the US is insolvent and simply cannot pay its debts. One cannot but wonder why they fail to acknowledge this. The most probable explanation is that they are being bullied by the very government they seek to assess by implicit pressure of regulatory retaliation. We have seen a striking demonstration of this dynamic at work in Europe last year. When Moody's lowered its ratings of Greece and Spain, both countries immediately pressured Brussels to take “urgent” steps to regulate the ratings business. The Greek finance minister wrote that “this is a matter that must be urgently addressed” at the highest levels. His voice was heeded and shortly afterwards a regulatory proposal was put forth. It has not been implemented yet, but the agencies got the message, one would think.

Keeping the US government triple-A credit rating is an act of deception

In any case, to keep granting the US government triple-A credit rating – especially in connection with its long-term paper – is an act of deception. There is no way our government will be able to honestly repay its 10 or 20 year bonds. Given the figures, it is overwhelmingly likely things will have come down by then and those debts instruments will be worthless. In a sane world those bonds would have to be rated “junk.” Revealingly, House Majority Leader Eric Cantor called the S&P outlook warning “a wake up call.” That it should be a wake up call is in itself indicative of the degree of collective self-denial from which we suffer as a nation. The writing has been on the wall for some time now. No one should have been shocked by this, especially not the politicians whose job it is to oversee this nation's finances. Their apparent surprise only shows that they are not doing their job. Their culpability goes much further, however, since it is they who created this trouble in the first place. Worse yet, they show no willingness whatsoever to take any meaningful remedial action. No one should not be surprised if there is more bad news and more market turbulence ahead. Neither should we be shocked if things come crashing down, because given the numbers this must happen eventually. It will probably happen quite quickly and unexpectedly just when our political class will be assuring us that all is well and under control. Above all, never trust what politicians tell you. Do not trust Republicans and do not trust Democrats. Do not trust Obama and do not trust Boehner. Do not trust any of them. It is misguided to believe that they will solve our fix. They are the cause of the problem and they will only make things worse. Of this we can be quite certain. To best thing you can do for yourself and your family is to make your own assessment and prepare accordingly.


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Vasko Kohlmayer -- Bio and Archives

Born and raised under communism, Vasko Kohlmayer is a naturalized American citizen. His work has appeared in various newspapers, magazines and internet journals.


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