The United States may be on course to lose its 'AAA' rating due to the large amount of debt it has accumulated, according to Martin Hennecke, senior manager of private clients at Tyche.John Whitehead, former chairman of Goldman Sachs, has gone public with a similar negative assessment of U.S. solvency:
"Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds," he said. "Eventually U.S. government bonds would no longer be the triple-A credit that they've always been."
There are at least ten "trillion dollar problems," facing the United States, he said, including social security, expanding health insurance, rebuilding infrastructure and increased spending on green energy. At the same time, the public does not want to pay for it.
I bolded that last sentence in his quote. Why has it come to this? Instead of leading the way in preparing the American people for austerity measures and financial realism, our ruling elite and their enablers in the professional caste engage in magical thinking typical of children. The most well-educated and privileged people in our governing class - lobbyists - are engaged in a final desparate grab for largesse:
Of the initial $350 billion that Congress freed up, out of the $700 billion in bailout money contained in the law that passed last month, the Treasury Department has committed all but $60 billion. The shrinking pie — and the growing uncertainty over who qualifies — has thrown Washington's legal and lobbying establishment into a mad scramble.
The Treasury Department is under siege by an army of hired guns for banks, savings and loan associations and insurers — as well as for improbable candidates like a Hispanic business group representing plumbing and home-heating specialists. That last group wants the Treasury to hire its members as contractors to take care of houses that the government may end up owning through buying distressed mortgages.
A sovereign debt default will probably spur the U.S.'s main foreign creditors - China, Russia, and sovereign wealth funds in Asia and the Middle East - to demand enormous financial concessions from the U.S. government. These entities may be willing to renegotiate payment terms if Uncle Sam accedes to putting their interests first, ahead of the American people. That could mean a number of things . . .
- Cuts in federal discretionary spending to ensure debt payments will be made without delay. Imagine: no space program, no school lunches, no farm subsidies, no state disaster aid, no SBA loans, and basically no more goodies for all kinds of constituencies.
- Cuts in military commitments that encroach upon on our creditors' regional spheres of influence.
- Cuts in middle class entitlements (ouch, the most painful one). Bye-bye Social Security and Medicare for the Baby Boom generation, starting in 2009.
Think I'm being alarmist? We'll find out soon enough (probably by the end of 2009) whether the U.S. addiction to debt will result in the "nuclear option" of the destruction of our superpower status via a Sovereignty Crunch. The only possible silver lining is that forced austerity will trim the fat from America's welfare state and force our people to become as self-reliant and hardy as our ancestors on the frontier. One can only hope.
