Monday, 25 April 2011 02:13

Standard & Poor’s U.S. Rating Downgrade Means Cut The Debt

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Ron ChapmanThe news media released some troubling headlines on the state of the American economy.  “Standard & Poor has downgraded its outlook for the United State/s credit rating from “Stable” to “Negative” increasing the likelihood that the rating could be cut within two years.” They took this position because: “…what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these are not clear to us.” That means the American AAA rating on long term bonds would be reduced because America is not a good credit risk.


Axel Merk, a currency fund manager in California clearly stated the case: “It’s a wake-up call that we need to do something, S & P is absolutely correct that this is something serious that needs to be addressed.”


Many economists believe that the only reason the economy appears to be doing well is because the government is going broke pumping printed and borrowed money into the market generating a fake recovery.  They argue this cannot continue without totally debasing the dollar.  If that happens, the bottom will fall out…totally. 


Republicans have proposed a $6.2 trillion cut in expenditures over the next ten years. They feel this is necessary and minimal considering that the national yearly budget is now of $3.83 trillion with an anticipated deficit of $1.56 trillion.  The Republican cuts would only lower the deficit to $.5 trillion per year.  This is not balancing the budget.


 But the Democratically controlled Senate will not pass this bill. President Obama suggests a $4 trillion cut over twelve years. Not enough to solve the problem or even significantly reduce the yearly deficit.  A significant difference exists that must be reconciled.


Democrats are unwilling to adopt the necessary austerity measures needed to reduce the deficit.  In their world, it doesn’t matter how much debt is passed on to other generations, just so long as they can pay people to win their political support in the coming election.  Since their political base is dependent upon government checks, they have no intention of reducing those checks and incurring the anger of this constituency.


Timothy Geithner, Secretary of Treasury, recently publicly chastised the Republican Party saying that they would bear the responsibility if there is no increase in the national debt limit and the United States government was forced to shut down.  Republicans argue that it is irresponsible to increase the debt limit without a corresponding reduction in expenditures.


Geithner and Obama argue that America cannot afford to default on its debt and, therefore, we have no alternative but to increase the debt limit this coming May.  In their view, Republicans must endorse continued entitlement spending or the fault belongs to Republicans. 


Many Americans don’t share that presumption.  They and Republicans believe that if the Democrats refuse to cut spending and the government shuts down the fault belongs to them! 


This is where America stands today!  Democrats argue that the economy is so fragile that it cannot afford any cutbacks without causing a Recession. Thus, they will accept no significant cuts in the budget.


 Republicans fear increasing the debt limit without deep cuts will jeopardize America’s future financial security.  American cannot continue to print, borrow, and spend.  It must restrain itself and take some painful medicine to cure past abuses. 


The divide is irreconcilable.


Both parties have to realize what most Americans know.  The gravy train is derailed.   Americans have to make strong decisions about government spending to protect our national economy and to secure the future of our children.  For either party to play politics with this most critical national security problem is tantamount to treason… and should be treated accordingly! 

by Ron Chapman


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