After U.S. loses ‘AAA’ credit, UK and France under review
We don’t deserve ‘AAA’ credit status with the large amount of deficit spending with no real end in sight. I am very surprised so many people that came out to rail against S&P’s decision (which I agree with) to bring down our creditworthiness a single notch. Its not like we can not regain that coveted position but we need to some our generous creditors that we have our house in order.
UK and France will need to be brought down a notch as well, they both have structural changes then need to implement so reform their quasi-welfare state. In the first world countries we seem to have all come into a phase where we are hooked on entitlements across the board. There is nothing inherently bad about entitlement programs, the issue is that we are selling ourselves as this capitalist utopic enclave for all the world to want to do business in. That will not mesh when a smaller working population over the next 20-40 years has to carry the burden for all these commitments that older generations made for them. Taxes will have to rise by a massive amount if we keep these programs intact by current standards.
That is going to kill innovation when the innovators that are being asked to create the jobs of the future are also going to be asked to give most of their profits to support our own homegrown welfare state. I am sorry but this is America where you can make it if you work hard and are a little clever. Not America where as long as your were born here we nanny you from cradle to grave. What I am suggesting is that we should just find a cutoff line for all of these major entitlement programs and then create either a stripped down alternative or none at all.
We keep our promises to our retirees and people close to that phase of their life. But the younger generations (myself included), should not be sold the idea that those programs are here for us. They are unsustainable and we could use those resources over time to put more effort into educating our population, help funding new ventures and providing support services to new families so the parent(s) can have a lucrative job that will provide for that family. That is the root of our problem, we lack the creation of real opportunity in America and this is the issue that needs to be dealt with over the next 50-100 years along with addressing our energy policy. I am still hopeful but I fear will need to undergo a massive crisis to get us all unified to deal with these complex and difficult issues that we face.
Reuters - France and Britain are most vulnerable within Europe to a rating review following the U.S. downgrade, with anemic growth and hefty borrowing placing them among the shakiest of the world’s triple-A rated lenders. Both countries have stable rating outlooks, making a sudden downgrade unlikely and markets have been so impressed by Britain’s debt-cutting strategy that they have pushed its bond yields to record lows.
Pennsylvania capital gets state aid to avert bond default
We have an interesting fight on our hands in Harrisburg. The current Governor Ed Rendell is putting pressure on the city and its council to make some drastic changes to avoid default and possible bankruptcy. It looks like PA has a act on its books called “Act 47″ where the state can appoint and administrator and take control of local decision making to avoid financial turmoil.
The City Council feels that the Governor is using this to put pressure on them to sell city assets and raise taxes for covering their current shortfall. The argument is that the council thinks they are making the best decision for the city and the state should not interfere with that. The state has a strong argument as well being that if they default, that might bleed over and effect the state’s credit rating. My bet is that the state will when out and Harrisburg will crave in to the austerity demands.
Watch out for “Professional Credit Cards” in the mail
The WSJ did a nice expose’ on the rise of “Professional Cards”. These cards are targeted towards small business owners and the self employed. It is quite interesting that these credit cards are not covered the the credit card reform act that just went into effect.
The article mention that there has been a whopping 256% increase in these offers compared to last year. The industry says there has been no increase in these offers above real demand from business operators. They still have all of the old profit centers of the credit cards of late.
It is not all clouds, come of the credit card companies like Capital One have voluntarily implemented many of the provisions from the reform act. I think there will be an outcry and we should see the banks do the same. End of the day, the banks need to get back to normal operations and make money the good old way, lending.
2012 – Corporate & Federal Debt Apocalypse?
According to the NYT, in 2010 we will have over $700 billion in notes coming dues from the private and public sectors. We could see a financial version of the hyped 2012 end of the world, by the lack of available credit for businesses as all these debt issues needs to be paid off and or borrowed. It is mind-boggling that our own U.S. government is going to tap the markets for $2 trillion (With a “T”) in treasury auctions.
We need to get this spending under control, we are slowly mortgaging our country and if we keep doing this eventually foreigners will own a good portion of it. If you don’t believe the last statement, Warren Buffet said the same thing on the News Hours when he was asked about the large amount of public debt.
New York Times - When the Mayans envisioned the world coming to an end in 2012 — at least in the Hollywood telling — they didn’t count junk bonds among the perils that would lead to worldwide disaster. Maybe they should have, because 2012 also is the beginning of a three-year period in which more than $700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets.
U.S. debt credit rating is danger of losing triple A status
According to Moody’s in their quarterly report cited the rising federal budget as a reason why the United States debt rating has continued to be under review. Going forward we can assume that either a significant increase in taxes is coming, large reduction in spending (not likely in the current climate) or issuance of more debt & currency (very likely). In the latter scenario, the U.S.’s rating would be under review and likely will experience a reduction.
Fortune - The United States isn’t in jeopardy of losing its gold-plated credit rating, though by one measure America is closer to the ratings-downgrade danger zone than Spain.