Barack Obama and his Congressional Democrat pals have been on wild spending spree and have now gotten the unsurprising result of the Obama Downgrade of the USA's credit rating by Standard & Poor's.

Then came the Obama blowout, in league with Nancy Pelosi's Congress. With the recession as a rationale, Democrats consciously blew up the national balance sheet, lifting federal outlays to 25% in 2009, the highest level since 1945. (Even in 1946, with millions still in the military, spending was only 24.8% of GDP. In 1947 it fell to 14.8%.) Though the recession ended in June 2009, spending in 2010 stayed high at nearly 24%, and this year it is heading back toward 25%.

This is the main reason that federal debt held by the public as a share of GDP has climbed from 40.3% in 2008, to 53.5% in 2009, 62.2% in 2010 and an estimated 72% this year, and is expected to keep rising in the future. These are heights not seen since the Korean War, and many analysts think U.S. debt will soon hit 90% or 100% of GDP.

Ah, but then there's the good news:

And yet, in a certain sense, these are still the good times. At the end of the week, U.S. Treasury yields plunged to Eisenhower-era rates. America, explained Ethan Harris of Bank of America Merrill Lynch, "still gets the safe-haven money." That's to say, as crazy as Washington is, Europe is perceived to be crazier. In confirmation of the point, over in Italy, which is (believe it or not) a G7 economy, police raided Moody's and Standard & Poor's over allegations that all the meanie things that the rating agencies have been saying about the Italian economy were having an impact on Italian stock prices. Apparently that's a crime in Italy. They're not yet shooting the messenger. But they are dragging him through the streets in chains pour encourager les autres. Good luck with that.

But I wonder if "the safe-haven money" is quite as safe as its investors assume. Under the "historic" "resolution" of the debt crisis (and don't those very words "debt crisis" already feel so last week?), America will be cutting federal spending by $900 billion over 10 years. "Cutting federal spending by $900 billion over 10 years" is Washington-speak for increasing federal spending by $7 trillion over 10 years. And, as they'd originally planned to increase it by $8 trillion, that counts as a cut. If they'd planned to increase it by $20 trillion and then settled for merely $15 trillion, they could have saved five trillion. See how easy this is?

I gotta get me some of that stuff!

As part of this historic "cut," we've now raised the "debt ceiling" – or, more accurately, lowered the debt abyss. Do you ever discuss the debt with your neighbor? Do you think he has any serious intention to repay the 15 trillion racked up in his and your name? Does your congressman? Does your senator? Look into their eyes. You can see the answer. And, if none of these parties seem inclined to pay down the debt now, what are the chances they'll feel like doing so by 2020 when, under these historic "cuts," it's up to 23-25 trillion?

And of course that is why S&P finally screwed up the courage to lower the USA's credit rating. That was apparently a big surprise to a lot of innumerate folks (e.g. talking hairdo Jeff Glor), but it has been obvious to the financially savvy who aren't so beholden to the Obama regime that they can't notice that Emperor Obama is buck naked. Cue well known investor Jim Rogers from before the Obama Downgrade:

While there is nothing new in the just released Jim Rogers interview with the WSJ, it is always refreshing to hear him tell the truth, which is, of course that "the US has already lost its AAA status. Who cares what Moody's say." As for the response: "The market looks ahead: this is not the first time that the market has dealt with the fact that the US is bankrupt." As for his proclivity to buy long term US debt: "I wouldn't lend money to the US in US dollars for 30 years at 3%, or 4%, or 5% or you name the interest rate.... I shorted it June 10. I am short the US bond market as we speak."

So where do we go from here? It doesn't look pretty, but we are talking banana republic time unless we can get Barack Obama and his clown posse out of Washington.

Labels: Barack Obama, Deficit Spending, Obama Downgrade

posted by Cracker Barrel Philosopher at 5:48 PM -