... it's the Big One's little sister.
First, I think that Standard & Poor is perfectly justified in downgrading the U.S. rating to AA+ since immediately after the debt limit was raised, the Treasury borrowed enough to put our debt equal to or greater than our GDP. We are in debt up to our eyeballs, and no one – except the Tea Party – is offering any realistic way to resolve the situation. We have no adults in charge. We have people who are interested in retaining power and place even if it means the collapse of civilization.
Increasing taxes, the only "solution" Obama and friends can offer, will not solve the problem. You can increase taxes until you confiscate every dime held by the "rich", and it barely makes a dent in the debt. Plus, the money of the wealthiest people will flee taxation and find various tax havens. Count on it. Meanwhile, as the economy recovers, and there is wage inflation -- a not unlikely scenario, many of us will find ourselves falling under the definition of rich. Our tax rates will rise in addition to the indirect tax of inflation, which is created and encouraged by a debtor federal government. We will be that much closer to being slaves.
Look at the news of what is happening in London today. Rioters have taken over the streets for the last several days. It is probably true that the police there shot and killed a man who had not threatened them. However, the looters are not interested in justice. They have found an excuse to pillage, and they are making the most of it. This is Great Britain – not Somalia. It has happened here in America, and there are many just waiting for any little thing to trip the trigger and set them off on a rampage against the authorities and the “rich”. Wherever you live, be on the alert. Chaos is in the air.
The market, after a sickening plunge, was starting to gain until the Fed issued their statement today, after some negative response it will probably end the day up a little. Though what the governors actually mean in terms of using “additional tools” is not clear, they may not be ready to implement more money printing. I am not sure what tools they have left. They cannot lower interest rates. They are afraid to raise interest rates. Fortunately, government bonds still seem to be in demand enough that S&P’s downgrade has not raised the government’s interest rate or forced the Fed into a buy back.
I like how they suggested that inflation – which they had previously said did not really exist or was within bounds – has mitigated. Crude oil prices have fallen over the last couple of days on fears of a worsening U.S. recession. That means we will get a little relief at the pumps, but, after all, it is approaching the end of summer. Schools around here are starting within a couple of weeks, or less in many cases. The end of vacation and summer travel – if anyone could afford it this year – results in decreased demand. I have yet to see any abatement in food prices. I’m sure the Chinese are not overly thrilled with our latest export to their country.
I am not worried about the stock market or the S&P downgrade. These are things that we are going to have to rectify over a period of several years. As a people, we have to change our attitudes and quit buying into the lies of those offering painless political fixes. No new law or set of laws, no new department or regulation is going to fix what is wrong with America and the world. Government is the problem. We need to get rid of subsidies for ethanol, milk, and bastard children. We need to dismantle the federal government to a pre-1900 level and turn most regulatory activities over to the states. Why should Wyoming and Montana have the same regulations that are needed in New York and California?
Doing away with the income tax and imposing something like the Fair Tax would be a huge step in the right direction. In fact, it would be far more beneficial to repeal the Sixteenth Amendment and institute a Fair Tax solution than to pass a Balanced Budget Amendment – at least in the short term.
Get ready for a little deflationary depression a la Japan's lost couple of decades. At least according to Denninger.