Tuesday, October 1, 2013

Aren't We (The U.S.) About Due for Another Credit Downgrade?

In Aug. of 2011, Standard and Poors did something they had never done. They downgraded U.S. debt from AAA to AA+.

http://en.wikipedia.org/wiki/United_States_federal_government_credit-rating_downgrade

Egan Jones downgraded the U.S. even further and for their efforts the United States Government dba as the Securities and Exchange Commission (SEC) decided to initiate an action against Egan Jones.
Two weeks after the April, 2012 Egan-Jones second downgrade to AA, SEC voted to bring administrative action against that firm regarding years-old activity. Mr. Egan said, "We are not going to be intimidated by anybody from issuing timely, accurate ratings."[34]

Then the United States Government also filed a 5 billion dollar lawsuit against Standard and Poors- coincidentally after they downgraded government debt also. http://www.reuters.com/article/2013/02/05/us-mcgrawhill-sandp-civilcharges-idUSBRE9130U120130205 

This is the type of retaliatory and bullying behavior that our government now routinely engages in whenever they find something they don't like. Kind of like the IRS targeting Tea Party groups- a scandal which was conveniently covered up and swept away. Had the IRS been targeting black people or women let's say- it's highly unlikely the scandal would have disappeared so easily.

Retaliatory behavior is a hallmark of this administration and started with Inspector Walpin. Obama is a ruthless adversary- the kind of guy who smiles while quietly twisting a knife in your back.

In Aug. of 2011, US debt levels stood at 14.3 trillion. That was 2.7 trillion ago. Currently we are barely under 17 trillion. http://www.usdebtclock.org/ Now with debt levels at 17 trillion- Congress is set for another battle to raise the debt ceiling again in mid October.

We burned through nearly 3 trillion in a little over two years. How is that possible? Aren't deficits declining rapidly? Well, sort of- that's what the CBO tells us.

As near as I can tell, not only do they (government wonks who underestimate deficits and over estimate revenue) play with the numbers- but I'm not sure anyone accounts for interest expense.

Here's fiscal 2012. 1.1 trillion. http://www.cbo.gov/publication/43697

Here's fiscal 2013. It is estimated at 642 billion, a dramatic improvement. So if we had deficits totaling 1.742 trillion for the past two years- where did that extra 1.2 trillion come from?

Interest expense.

If Congress raises the debt ceiling to 19.9 trillion in October (they'll never round it to 20, that's just bad marketing) that would add another 5.6 trillion to the deficit since 2011.

It's interesting to see annual deficits go down yet interest payments must continually rise- we aren't even close to a cash surplus nor are we paying any of the principal down.

The annual interest expense on 1 trillion is 20 billion. (2%) On 10 trillion it is 200 billion. On 20 trillion- our interest expense will be 400 billion a year. Every 1% rise in interest rates will be equal to 200 billion in interest expense. If rates rise 3%- our interest expense will be one trillion a year.

A thousand billion a year in interest. Obviously if the Fed can't hold rates down- this shit gets out of control quickly. That's why the FED can never raise interest rates- not until such time that we are running a surplus and eliminating debt. I don't expect that to happen in the next ten years.

That's why our government absolutely must manipulate everything from inflation figures to the price of gold. If either of those things were to rise appreciably- the interest rate genie would soon be out of the bottle. I laugh when people are frustrated by manipulated markets. It's not a matter of "if" so much as a matter of "how long." As government crushes the will of investors who front run those markets- it stops investors from fleeing dollars and plunging them unto gold. Common sense tells me that the government must absolutely manipulate those things just as they are manipulating and monetizing zero interest rates, (ZIRP) manipulating unemployment and inflation figures, and buying 85 billion dollars a month in mortgages and treasuries to create artificial demand.

If you thought a "pick a pay" mortgage where you only made interest payments was a sucker mortgage- know this. Your government sold us into debt and tax slavery. That's all they can do with your tax money. Pay interest and add to annual deficits. They aren't even close to paying this principal. If ever.

It begs the question. With no plan and no principal payments, when will the next credit downgrade come? Or has the United States Government intimidated the credit rating agencies with it's bullying and gestapo tactics?

With no plan in place and every significant economic number now being massaged- I expect the credit rating agencies to downgrade US debt again over the next 6 months. It will be interesting to see if the credit rating agencies are going to do their jobs or be intimidated by our bully government.








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