Worse This Time?
Leave it to Bank of America/Merrill Lynch to publish their fears of another credit-rating downgrade for the US government. On Saturday, I brought you the story of how this very company is shifting some of its European derivatives over to its depository arms so that they will be insured under FDIC. It’s a stunning development that an analyst for this very institution to tell us they expect another credit downgrade, tells us something about how they believe that will work out for the American tax-payer that will now be on the hook for trillions. They don’t think it’s going to turn out well, I can assure you, but you can expect all sorts of hand-wringing excuses when the meltdown occurs.
In his dire analysis, Ethan Harris writes:
“We expect a moderate slowdown in the beginning of next year, as two small policy shocks—another debt downgrade and fiscal tightening—hit the economy. The “not-so-super” Deficit Commission is very unlikely to come up with a credible deficit-reduction plan. The committee is more divided than the overall Congress. Since the fall-back plan is sharp cuts in discretionary spending, the whole point of the Committee is to put taxes and entitlements on the table. However, all the Republican members have signed the Norquist “no taxes” pledge and with taxes off the table it is hard to imagine the liberal Democrats on the Committee agreeing to significant entitlement cuts. The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes.”
Of course, part of the problem is that everybody is waiting for the other shoe to drop. Europe stands on the verge of a complete meltdown, and our Federal Reserve has gotten us so deeply tied to the success or failure of Europe at this point that if Europe goes down, we will likely fall down too. Several outlets are reporting that a number of European banks are on the brink, and that this will trigger a sell-off and panic unlike anything we’ve seen in a long time.
At the same time Germany’s Angela Merkel is chastising Italy over its debt of 120% of GDP, I wonder if she’d do us a favor and look at the US, which isn’t far off from that ratio itself, and tell Obama a thing or two while she’s at it. Merkel is among those who are urging further austerity measures, and she’s right. The trouble is that leftists never tire of pitching their best Keynesian plans at these sorts of problems, pretending that if only they can borrow and print a little more liquidity, the problem will solve itself. Naturally, that’s nonsense, and while everybody knows it, the spenders will never, ever admit it.
Ladies and gentlemen, we stand on the precipice and wonder why this is happening, but anybody who has ever learned the hard lessons of running on credit must begin to see the simple truth of the matter: You cannot consume more than you produce on an indefinite basis. This entire fiasco is the result of runaway governments spending our future into oblivion. While we’re at it, we must also rein in the Federal Reserve as the policies now in force are merely multiplying the trouble. One year ago, as they began to plan out QE2(Quantitative Easing, Round 2,) Sarah Palin warned the world. She was mocked by Krugman, the purveyor of Alien Attacks and other nonsense dressed up as economics, while she was being berated for her stance by a host of others, but in the end, who has been right? We mustn’t permit ourselves to suffer under this comfortable illusion any longer: There is no alternative but to dramatically slash government spending. We must do it now, or there may be no tomorrow.
