The views expressed in any article published in this blog are the author's own and do not necessarily reflect the views of Joseph Foster or Bob Lupoli.

Tuesday, April 19, 2011

U.S. Financial Time Bomb - Standard & Poor's

By Joseph Foster
Email Joseph Foster at jfoste3@aol.com   for a free book summary. My book, ‘’Destruction of America", subtitled "Stand up for America" will be available May 2012 at all major bookstores. Visit my blog Stand Up for America! for more articles.

U.S. FINANCIAL TIME BOMB

Bob:  in response to your comments and the article on the U.S. possible negative rating here are my comments;

Some politicians in Washington use voodoo accounting methods. Voodoo is some form of magic when applied to accounting it makes the debtor feels secure and rich.

Here is how it works, Washington decides to cut the budget by say 70 billion, you then take that cut and multiple it by 20 years and come out with $1.4 trillion dollars in budget cuts.

It is a magic that when used in time all of a sudden the deficit will disappear and it causes the politicians to celebrate with the people. However the sharp financial gurus on Wall Street do not believe in Voodoo accounting, and therein lies the problem.

Another economic concept referred to by the renowned economist Kenneth Galbraith as a “trickle down” economy, here is how it works. First it makes the rich, richer and as they get extremely rich, the wealth then trickles down to the middle class and poor. Galbraith does not accept that it trickles down.

On Monday April 18, 2011, 10:39 am
NEW YORK (Reuters) - Standard & Poor's on Monday downgraded its credit outlook for the United States, citing a risk that policymakers may not reach agreement on a plan to slash the huge federal budget deficit. While the credit rating agency maintained the country's top AAA credit rating, it said authorities have not made clear how they will tackle long-term fiscal pressures. S&P said the move signals at least a one-in-three chance that it could cut its long-term rating on the United States within two years.

It looks likely that within the next two years the U.S. credit rating may slip from triple AAA to the B level, if that occurs the interest rate on money borrowed will be higher. I do not attach great importance to rating agency, they quite often make mistakes. A state or private entity that is not licensed to print money may default, the U.S. may default in its financial obligation, if it were conquered by a foreign Army. If that was not to occur it will meet its financial obligation by printing more money to pay its creditors.

The value of the money used to pay its creditors is debased due to unsound fiscal practice. Very smart financial gurus develop an investment plan to protect their wealth, they are few in number, and many are wiped out finically by inflation. Politicians on both sides of the isle voted for two wars that were unpaid for, voted for the Bush Tax cuts that were unpaid for, voted for a prescription drug bill for seniors that was not paid for, moreover prompted by the military industrial complex to keep increasing the defense budget. When they are told that Russia once a great and grave threat is no longer a threat, since they are now focused on making money. They jump to a terrorist that threat is magnified to the point that some believe that the rag tag army of the Taliban of approximately 8000 men is a threat and perhaps that Army may invade all of the countries in Western Europe, thereafter they will cross the Atlantic and invade the continent of North America. When the politicians are told that is impossible, they create Iran as the threat a country that has not as yet developed a nuke or a delivery system.

‘’Budget Debate in Futility’’
The reality is the U.S. government spending keeps increasing each day that whatever is cut is not sufficient to cover the increase in government spending. The U.S. government has adopted a life style that was supported in the past by massive wealth flowing to the U.S. after WW11 from Europe, Asia, Africa, and other countries around the world, moreover massive amount of oil resources in the past that was in the U.S. That recourse has now been depleted.
The old timer such as myself remembers when Detroit was selling cars based on horse power.
The U.S. need to change to adapt to the low flow of wealth, its politicians are not willing to make the change. If the revenue does not cover its massive expenditure to sustain a life style or role in the world, then it borrows the money to meet its high expenditure, ultimately in the next 10 years it will reach a point where it cannot borrow any more, in desperation it will resort to massive printing of its currency as occurred in Germany prior to world War11 and other countries.

When that occurs the Big Mac without French fries or drink will cost $50.00. Here is an illustration, a super wealthy person adopts a life style based on his wealth, due to circumstance his wealth has diminished, and he calls a financial expert for help. The expert tells him you can no longer live in the $50 million dollar home, nor could you afford a private jet, nor a $10, million dollar yacht, You need to change your life style and live on less, he refuses to change his life style and continue to live beyond his means on borrowed money, in the end, not by choice he goes Bankrupt.

As to the U.S. it is not a matter of cutting its budget, the crust of the problem involves change, once the change has been made the budget will begin to shrink. Here is what type of change is needed.
1.   It shall cease to provide free military defense to other countries.
2.   It shall stop all foreign aid.
3.   Withdraw all of its forces around the world and stop being the police man of the world.
4.   Down size the U.S. government by 20 percent, eliminate many agencies,
       And pet projects.

In terms of entitlement every civilized country provides a safety net work for its citizen, it cannot be eliminated in preference of remaining a policeman of the world. Yes it should be improved to eliminate fraud and medical excess charges, and the elimination of $25.00 bucket of ice charged some patients, at Some U.S. hospitals.

Cameron of the U.K has eliminated many UK agencies and cut UK budget by 20% France thanks to the U.S. defense, has cut France military budget, it depends on NATO funded heavily by U.S. taxpayers. Can the U.S. afford to be the policeman of the world; it could when America enjoyed a monopoly in manufacturing that began after WW11.

It now supports the defense of the 27 EEC countries that combined is far wealthier than America, they all have cut their defense spending and rely on U.S. Free defense. The U.S. further stretched its defense to the Pacific to protect Japan, Taiwan and North Korea, that was justified before China changed to a free market economy. Some may say but China is a future threat perhaps yes, are we going to Live in a world of future threat, if so do we expect the American people to be taxed to death in anticipation of future threat.

Russia changed but not the U.S.
Russia budget was drastically reduced when Russia decided to make a change in its economic policy by reverting from communism to a free market economy, it also made a change when it decided to stop its occupation of Eastern Europe which it funds by massive foreign aid in money, subsidized oil and gas and free military hardware, all for the purpose of promoting communist ideology; that is no more. But America has not changed. Humans are creatures of habit and it is difficult for a person to discard a habit.

It is difficult for the U.S. to reduce its role in the world that it acquired at the end of WW11. In time it will change as Russia and China did. As to Russia it was painful at the beginning for the people that were once depended wholly on the State. I was there and Saw the pain on the faces of the Russian people; I was there when I saw Russian families began to sell some of their household possession to buy food. I was there when the Russian rubble was losing value to the dollar each day. Today, Russian tourist has now replaced the Americans at St. Marcos Square in Venice Italy.

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