By Mike Porter
The eighth month of the year 2011 will be remembered for years to come. August of this year will forever be a stain on America’s history much like September of 2001 for the terrorist attacks as well as September of 2008 for the financial collapse. August of 2011 delivered two significant and permanent financial setbacks to the American economy. The first being America’s debt beginning to eclipse the country’s GDP for the first time since 1947 and the second being the first ever downgrade of United States Treasury bonds. I find it ironic that the same month America dropped the atomic bombs which lead to the beginning of America as a world superpower, sixty-six years later our government essentially drops a bomb on the US economy ending our reign as the lone superpower in the world. Our fall from Super Power status has been a long time coming and many wonder where do we go from here.
First, let’s address the downgrade of the S&P and why this is so significant. S&P is a credit rating agency who for the first time ever believes there may be some doubt about whether or not the US may be able to pay the people who invest in US backed securities. This is no different than a bank lowering the credit rating of a faulty business or a family who is living beyond their means. Why shouldn’t S&P believe this with over 14 trillion in outstanding debt? Many naysayers will make the false argument that S&P is only one credit agency who has dropped our status and a credit rating of AA+ is still a very good rating. I do not share this blind optimism and strongly believe the other credit agencies will soon follow suit. Suppose they are right, there is still no way a country can continue to make the claim they are a super power when as many as one single credit agency do not think we are the best in the world. I believe many of these same people would still say everything was fine if our rating was even lower. Others wonder what took S&P so long to come to this conclusion with so much outstanding debt. It is obvious S&P took notice to the recent raising of the debt ceiling which contained further additional spending providing more proof nobody in Washington will get serious about lowering the size of government. While the market was hemorrhaging to the tune of more than 600 points today, Obama addressed the nation by simply regurgitating the same old tired rhetoric claiming more wealthy people need to pay their fair share as if they don’t already. Meanwhile for the first time in history, America’s credit rating has fallen on his watch and his policies are much to blame for this downgrade.
Debt exceeding GDP should not be a surprise to anyone. America has been on an unsustainable spending path for many years now. We can start with GW Bush and the Republican controlled Congress. Expansion of Medicare drug benefits, No Child Left Behind, TARP, Sarbanes-Oxley, and Office of Homeland security being only a few of the many government expansions coming from the so called “right wing” party. While I personally do not have a problem with Bush’s decision to take us to war in Afghanistan or Iraq, I do blame him for not fighting the financial side of these wars. Then along came Obama, who along with the Democratic controlled Congress, expanded on Bush’s policies and spent even more money like nothing ever seen before. One doesn’t have to look past Washington to find out how we got ourselves in this mess.
Where do we go from here? Well for starters we have to accept the fact we are no longer a superpower. Although we still do have a lot of influence in the world, we have to cease behaving like a Superpower. First, it is time to get serious about entitlements, and that has to come from you the people. You need to call your representative and tell them you are tired of paying for entitlement programs and you are willing to take less in benefits later if it means keeping more money in your paycheck today. Second, I am sorry to say we have to re-evaluate everywhere where we have troops stationed today. We have to identify the locations where it still makes sense in areas that pose a risk and draw down in areas that are less important. In these less important areas remaining military bases should be closed. I have had many disagreements in the past with both my Liberal and Libertarian friends on “policing the world” and while I feel some of our foreign policy entanglements helped us preserve our status in the world, it is just as clear today we can no longer maintain this activity when we are no longer a Superpower. Next, we have to review all foreign aid including how much is given to the United Nations every year. Last, but not least, we need to revamp our tax code as well as remove hindering business regulations which causes the private sector tons of money and always come at the expense of American jobs and wages.
Only after we address these things can we even begin to get things under control. Failure to do so will mean more credit downgrades and eventually the collapse of the US dollar. Many believe this collapse has already begun with gold and commodity prices going higher and higher as the dollar loses more purchasing power. Many in ancient Rome refused to believe Rome was falling, even though the evidence was overwhelming. The United States has been falling for some time now and I am afraid things are only going to get worse. Without a serious turnaround get used to high unemployment and a weak devalued currency which hopefully for our sake never gets as bad as the Pre WWII German Mark. However, with interest rates at practically zero and high unemployment, the only thing left for the Fed to do is to continue printing money until it is worthless. My best guess is the Fed is hoping things turn around before they are forced to raise interest rates. Unfortunately, someone needs to tell the Fed that too much printing of our own money is what caused us to lose our Superpower status in the first place.
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