It is not just a Greek, Portuguese or American issue. Insolvency is obvious and clear throughout the width and breadth of every major nation state. National Socialism, or Welfare-Capitalism, or the fantasia of a state-managed 'caring community' – these programs and ideas always fail. When interest rates increase, and the bond market wakes up, the stock market will fall like a rock. S&P's downgrade of the US financial situation is very mild. An A3 rating is frankly preposterous. The US is at best a B grade credit risk.
The negative outlook on long-term U.S. debt issued by S&P “makes clear that the debt-limit increase proposed by the Obama administration must be accompanied by meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt,” Cantor said.
Congress is facing a vote as early as next month on raising the government’s $14.29 trillion legal debt limit. The Treasury Department projects that it will hit the cap on May 16, though it could use emergency measures to avoid default until about July 8.
Obama and members of his economic team have said that failure to approve an increase could have catastrophic consequences for the U.S. economy and financial markets.
As part of the debate on the government’s spending, Obama last week offered the outlines of a plan to slash the debt by $4 trillion over 12 years through a combination of spending cuts and tax increases.
People are right to be skeptical that any of the Republicrat politcal elite will do much about the US fiscial improvidence. Some marginal 1-2% cuts here and there, some poor goats sacrificed, reducing the government's purchases of coffee and cherry wood furniture....but no major reforms. There will be lots of bashing the 'rich' and mumblings about the moral necessity to raise taxes. Apparently the US central bank believes that seigniorage, the power of owning the world's reserve currency, and the dependency that China has upon US trade and investment, all mean that printing money, debasing the currency and having negative real interest rates is practical and cost-free.