Last week
ended on a note never played before . . . the US’ credit rating was
downgraded from AAA to AA+ for the first time in our history by S&P
last Friday. Is Standard & Poors punishing the US for our intensive
media coverage of the Debt Ceiling Furor? Or, does this mean something
more?
First, let us be mindful that major ratings agencies, like S&P, were
all too willing to give AAA ratings to those flim flam, mortgage-backed
syndications, containing tranches upon tranches (may that word, tranche, disappear back into the lexicon with all deliberate speed!) of
Lord Only Knows what NINJA (no income; no jobs; no assets) fraudulent
loans they could cram into offerings that the world financial world
became addicted to, and gobbled up in the first decade of the 21stC.
Estimates of how much in market value of these stinking time bombs are
still held worldwide by financial institutions and others, vary into the
10’s and even hundreds of Trillions; yes, dwarfing even our healthy
14-something Trillion of debt – amounts that the whole world’s GDP could
never pay back are involved.
Never mind that the world financial system was nearly brought down by
feverish world-wide purchases of these toxic securities back in the Fall
of 2008, based on rating agencies’ now seriously questionable AAA
ratings, as we approach that ugly third anniversary still in the throes
of our economic miseries. In my humble opinion (and, I’m sure,
reasonable minds can, and do, differ), we can thank the ratings
agencies, like S&P, for that gift to us, our children, and the
world’s oh so shaky financial future.
Second, America’s democratic process is messy when viewed up close – the
more heated the differences, the messier the result – like sausage, you
don’t really want to see all the details up too close of how federal
(or state) law comes into being, unless you have the strong stomach of a
butcher. But, we saw it day and night, 24/7, for weeks on end,
complete with wall to wall Talking Heads commentators predicting all
kinds of terrible things that would happen if our debt ceiling were not
raised and the US was actually allowed to default on its obligations.The
obligations were entered into by our Congress in abundant good faith
and which raising the debt ceiling would only allow us to repay and make
good on. But, the transparency of our system, when compared to so many
in this troubled world, gave the whole wired world a front row seat to
view the greatest media show in town this Summer: America Fiercely Struggles within itself over fundamental differences concerning how we spend our money . . . . just like one big happy family, no?
Third, we had a whole new twist to a very old story this time.
Elections last Fall brought forth a new breed of Freshmen Congressmen
and women to the House this time – people who could not be bargained
with by using the regular incentives – a little pork here, a little pork
there, and a deal gets made. Who really cares if Puerto Rican rum
makers or manufacturers of wooden arrow shafts in Oregon won the
Lobbyists’ Lottery and got some extra moola – we’re rich, right? Well, the Tea Party cared.
Now, traditionally, a Freshman Congressperson would sit quietly on the
Back Benches and absorb and learn before making any waves. Not this
time.
We were warned that, if the debt ceiling were not raised, terrible
things, like stock market crashes, US credit downgrades, and becoming
the mockery of many international commentators, would result. Funny
thing, we raised it, and the stock market still swooned and then melted
like McArthur Park’s cake left out in the rain. Our credit-rating
still got downgraded, and international commentators have still
lamented the late, great US of A (not quite so fast there, boys!) – even
China has chided us about our addiction to debt. Of course, China owns
so much of our Treasury paper, some say a Trillion or two, or more,
that, if they really don’t like our debt-incurring practices,
they can always shred all those T-Bills, add some milk and sugar, and
eat them for breakfast. There comes a point when a role reversal
occurs, when debt grows so large that your banker is owned by you,
rather than vice versa.
But, we have to stay tuned to see how the blowback which follows will
occur. Will a AA+ credit rating, as opposed to our former immaculate
AAA, mean that our adjustable mortgages, credit cards, and so much more
will now have a great excuse to jack up our interest rates? Why not?
Or, will the world continue to view US Treasury paper as the best bet
on earth?
I’m betting on both – a tweak upwards on those interest rates, from our
current levels, which have not been so low since the beginning of
Eisenhower’s term, and that we will keep merrily selling our US Treasury
paper and obligations worldwide. It is fortunate that the Euro is
having serious trouble and there is really no other currency or system
which presents any more solid investment than our own.