Facing the Consequences

For decades, the American political and financial establishment has enjoyed the ability to  squander the country’s wealth, make horrible financial choices, and rack up huge debts and deficits with little to no immediate negative consequences.  This was due to the US dollar being the global reserve currency, the ease of borrowing based on the USA’s AAA credit rating, and both of these backed by the American military superpower status.  Well the consequences of such recklessness must always eventually be faced and our time may soon be coming.   The international economy has been moving to get away from the dollar for awhile now, the US military’s aura of invincibility has been fatally weakened by our Middle Eastern quagmires, and now the USA’s credit rating has taken a major hit.

Several smaller Western credit rating agencies had already downgraded the US from AAA to AA, however S&P’s announcement this weekend that they would be doing the same was as big as it was expected.  This downgrade is a powerful statement by the markets concerning how likely the US is to be able to repay its current debts and wisdom of those in charge of the US government.  The S&P warned that if at least four trillion was not cut from the proposed spending, then the US’s credit rating would be downgraded; the US Congress choose to only cut two trillion.¹  Today, in the first day of trading after this announcement, stocks fell over 600 points; compounding the losses from last week’s drop following the debacle that was the US Congress’ attempt to fix the US government’s financial situation.²  But the bad news doesn’t end there.  Moody’s, another major credit rating agency, has announced that it too may downgrade the US before the end of 2012 if the US government’s financial situation does not improve.³

One would think that this would be a wake up call to those in DC to take a hard look at the way they handle the US government’s finances and start making some hard cuts to the budget.  But this of course was way too much to hope for from our leaders.  Instead of making cuts, Mr. Obama’s administration today announced that it would be sending 105 million dollars to East Africa in famine relief.⁴  That’s right, as our country’s finances fall apart our leaders are determined to continue to be the world’s nanny and send billions aboard to fix the world’s problems.

The people running the US government are completely out of touch with reality.  This was aptly demonstrated by Mr. Obama’s press conference following the first ever downgrade of the US’s credit rating in which the best he could come up with was, “no matter what some agency may say, we have always been and always will be a AAA country.”⁵  That’s just sad and doesn’t even start to face or address the consequences of decades of bad decisions.

 

 

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