US Solves Credit Rating Problem

What's different this time, he says. Well, for starters, how about a $15T debt that will likely go to $21T before the end of 2012? How about a government that borrows $0.40 of every dollar it spends and is now paying $400B a year in interest costs at the lowest interest rates in living memory? How about an extremely weak US dollar that is being printed to extinction? How about a REAL unemployment rate of 18%? How about huge financial problems in both Japan and Europe? How about serious talk around the world about replacing the US dollar as the world's reserve currency? That happened to Britain and it could happen to us too.

Things are much worse today than they were back in the 1980s... and the things that have gotten worse since then are still trending lower, not higher. Yes, things could turn around. It is possible and I hope that they will. The question is, "Will they?" and not "Can they?". Do you really want to bet your family's future on the competence and ability of the US government to solve these problems successfully? I do not and my post was a statement to that effect.

The bottom line, as I see it, is to be prepared for a potential financial disaster is a lot smarter than not being prepared for it. Storing food and water is a no brainer, yet many people do not do it. Stores typically have a 3-4 day supply of food at any given time. Anything that interrupts that supply for more than a week will generate real hardship for those who are not prepared and there is no guarantee that the food supply will be fixed after a single week. Does anyone on here want to be these people? Not me and not my family.

Finally, there is very little to being prepared for financial disaster that cannot be undone. Stored food and water will be consumed regardless of what happens in the world. Buying today means that we avoid some of tomorrow's higher prices... and food prices ARE rising. Anything else that is purchased can also be sold. Yes, we might or might not lose some money on them but so what? People buy insurance all the time and then are very happy that they didn't need it. Is this so different?

Things seem worse now because the past is always viewed through rose-colored lenses. But unemployment peaked higher in 1982 (at 10.8%) that it did in this recent recession. Inflation was certainly higher, reaching over 13%. Despite the severe recession, that inflation meant the fed had zero leeway for monetary stimulus.

Granted, you could say that the 1980 recession was shorter-lasting, but that was a result of correct and timely policy action, the only reason things are still weak now is that Washington has done everything in its power to hamstring business instead of to support it. Should we change course policy-wise, there's no reason to believe we wouldn't see similar results to what we did starting in 1983.





Not all debt is created equal. The $15T number includes interagency debt which represents nothing more than a promise to pay current retirees social security. Since we're going to do that anyway, we should really consider public debt, which is only $10T. Yes, that sounds like a lot, but it's still well under 100% GDP. In other words, although it's concerning, it's not yet cause for panic. And no credible agency has estimated an increase in $6T of debt between now and 16 months from now. Yes, we will add to our debt, but likely by some $1-$2T, still leaving us under 100% Debt/GDP. Again, cause for concern, but not for despair. Canada went through an austerity programme a few years ago, and they're none the worse for it.