Mr. Geithner, Your Crystal Ball Is Broken!

Mr. Geithner, please check your crystal ball because it appears to have a major malfunction! Either something’s wrong with the ball or you’ve got a classic case of “operator error” going on. You might look into borrowing your good buddy Barack Obama’s. His crystal ball seems to be shooting fairly straight these days. “Electricity rates will necessarily skyrocket,” anyone remember this gem? He could start a 1-800-psychic line with that one! Hey it might not be pretty, but at least it was truthful.

In an interview with Fox News on April 19, 2011, a little over three months ago, when U.S. Treasury Secretary Timothy Geithner was asked if the U.S. was at risk of losing its AAA rating, he replied:

“No risk of that, no risk…you see the leadership of the United States of America, the President…the Republican leadership…the Democrats…recognizing now that this is the right thing to do for the economy.”

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For some time now, the United States debt has been creeping up to the 100 percent of Gross Domestic Product (GDP) mark. That’s a disaster just waiting in the wind. It’s reminiscent of 2001 when the Bush Administration warned of potential problems and warned that financial giants, Fannie Mae and Freddie Mac, could “cause strong repercussions in financial markets.” In 2003, the White House upgraded the concerns to a “systemic risk” that could spread beyond the housing sector. But U.S. Representative Barney Frank (D) told the House Financial Services Committee that the housing market was fine, stating, “Fannie Mae and Freddie Mack are not in a crisis.

In 2008, the housing market crashed, sending the economy in a downward spiral, from which we have not recovered. You would think that our “leaders” would have learned their lessons from the past, especially from such a debacle just a few short years ago. But with the passing of the recent budget hijacking, debt ceiling busting deal that our lawmakers recently compromised on, ignoring the warnings of the TEA Party, it is apparent that the lessons of history were short-lived. Shortly after the deal was done, the unthinkable happened. The US debt hit the 100 percent mark of GDP, the market tanked, and the US credit rating was downgraded from its AAA rating, with the real possibility of being downgraded again.

It was an historic day for America, all on President Obama’s watch. From MSN:

“US debt shot up $238 billion to reach 100 percent of gross domestic product after the government’s debt ceiling was lifted, Treasury figures showed Wednesday. Treasury borrowing jumped Tuesday, the data showed, immediately after President Barack Obama signed into law an increase in the debt ceiling as the country’s spending commitments reached a breaking point and it threatened to default on its debt. The new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, and putting it in a league with highly indebted countries like Italy and Belgium…Ratings agencies have warned the country to reduce its debt-to-GDP ratio quickly or facing losing its coveted AAA debt rating.”

How could they not see this coming?

Look, let’s put it in kitchen table terms, the way most Americans these days understand it. When your income matches your debts, there is no room for error. None. Let’s say my family makes $60,000 a year. That’s $5,000 per month. And when I add up all my debts and expenses (mortgage/rent, car payment, insurance, utilities, food, gas, etc.) and I find out that, it too, equals $5,000.00 per month, I’m worried. Heck, scratch that, I’m PETRIFIED!

You see, in the real world, things come up. There is always a “crisis” just around the corner. A trip to the doctor, a flat tire, a heat wave that spikes my electric bill, etc. And, dare I say, if gas goes up then you can pretty much say that I’m screwed. Because, unlike the government, I don’t have a “blank check” that I can go cash that comes out of the wallets of “other people,” and I don’t have a printing press in my backyard. Credit? Please, I have already used all that, and a bank will just laugh at me walking through their door. Hypothetically speaking, that is.

The reality is, when your outflow exceeds your income, then the outcome will be your downfall!

Well nobody is laughing now, and Standard and Poor (S&P) is now holding the proverbial crystal ball, but they know how to use it.

In a report released by S&P, the worldwide leader in financial market intelligence gives a bleak overview:

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.

More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.”

Tapping further into the Crystal Ball, S&P gives a warning shot that we should all pay attention to:

“The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again [emphasis added]. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction–independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners–lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government’s debt dynamics, the long-term rating could stabilize at ‘AA+’.”

The problem with Washington is simple. It’s not their money. There is no emotion attached or sense of urgency for a reduction in spending. It’s just a green sheet of paper to them, but a lifeline to us. It’s easy for all the politicians and bureaucrats to compromise and make deals with “other people’s” money.

Then, perhaps, maybe “other people” should be in charge!

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