Understanding the mindset of the modern swamp dweller can provide insight into how credit rating agencies and temporary spending bills are steering America towards a troubling fate.
Recently, Moody’s Investor Service downgraded its outlook on U.S. credit from ‘stable’ to ‘negative.’ Yet, they maintain the U.S. at a AAA rating, the highest possible. What’s the reason behind this discrepancy?
A few months back, Fitch reduced its U.S. credit rating from AAA to AA+, while S&P Global Ratings made a similar downgrade as far back as 2011. Does Moody’s genuinely believe that U.S. credit remains exceptionally safe?
By all reasonable assessments, the financial condition of the U.S. government has deteriorated significantly over the last five decades. Yet, Moody’s continues to rate the country’s credit as if its debt situation remains sound and stable.
With the lowered credit outlook, Moody’s may be priming the public for an eventual downgrade to U.S. credit. However, such a downgrade would likely arrive too late to have much impact. It certainly won’t prompt Washington to address its spending issues.
The current political handling of U.S. finances can be likened to a circus. For instance, this week the House of Representatives approved a stopgap bill to ensure that federal buildings stay operational from coast to coast. The Senate followed suit promptly, allowing President Joe Biden to endorse it with a signature.
This stopgap bill is essentially a two-part approach. The first part extends funding until January 19 for critical areas such as military, veterans’ affairs, transportation, housing, and energy. The remaining government services will be funded until February 2.
Consequently, in just two months, yet another budget debate will erupt—filled with bluster from politicians eager to make noise. But what’s the actual purpose?
Ball and Chain
The threat of a U.S. government shutdown is more of a performance than a reality. We’ll believe it when Washington defaults on its debts, Social Security checks are returned, and government workers are seen holding “will work for food” signs.
Instead, after the theatrical display, a deal will be brokered that claims to cut spending by $1 trillion over the next decade. Politicians will congratulate themselves for making tough choices aimed at safeguarding democracy. They’ll assert that the nation remains fundamentally strong, and likely treat themselves to another pay raise.
In truth, this agreement will only reduce annual deficits from $2 trillion to $1.9 trillion over the next decade. Therefore, instead of accumulating $20 trillion in new debt over the next ten years, the U.S. will take on $19 trillion—hence the supposed $1 trillion reduction.
This $19 trillion will simply be added to the already staggering $33.7 trillion in existing debt. Does it really matter if the national debt is projected to be $52.7 trillion in November 2033 instead of $53.7 trillion?
Moreover, there will inevitably be a crisis—real or contrived—over the next decade that necessitates extreme government action. This typically means ballooning the deficit to bail out favored businesses and industries.
We witnessed this during the 2008 financial crisis, where firms like Lehman Brothers received nothing while bailouts flowed to AIG, Goldman Sachs, and General Motors. Meanwhile, countless individuals, like your uncle, faced bankruptcy and homelessness.
No matter what unfolds this time around, the burden of debt will be monumental. This overwhelming debt will infringe upon Americans’ natural rights—rights defined by John Locke as life, liberty, and property.
A Whole Lot Less
With every passing year, this debt load grows heavier, and the chain of consequences shortens. Opportunities dwindle; capable individuals find themselves stuck.
The natural rights of younger generations are being trampled, forcing them to bear the cost of spending decisions made long before their arrival. They will inevitably spend a significant portion of their lives making ends meet for far less.
This reality is already evident, as many recent college graduates find themselves unable to afford substandard apartments in struggling neighborhoods. After accounting for taxes, fees, and rampant inflation, many barely have enough left for a simple meal.
In this light, the latest consumer price index report seems detached from reality. According to the Bureau of Labor Statistics, consumer prices rose at an annual rate of 3.2% in October.
While food and shelter costs increased by 0.3% that month and gasoline fell by 5%, the CPI suggests there was no net change in consumer prices from September. Still, the cost of basic items like chicken sandwiches remains exorbitant.
The stock market responded to these CPI figures as if interest rate hikes are now a thing of the past, with projections of cuts in early 2024. The prospect of lower borrowing costs led to notable gains on the DOW, S&P 500, and NASDAQ.
The Swamp Walker Delight
In the short term, the potential for a strong stock market rally as the year closes is thrilling. A little holiday cheer courtesy of Wall Street is welcome. Enjoy it while it lasts.
However, one must be prepared for an inevitable and sharp reversal of prices.
Ultimately, a year-end rally does little to neutralize the ongoing disaster of colossal debt, soaring deficits, and rising interest obligations awaiting resolution. Unfortunately, these issues are converging at the least opportune moment.
The demographic structure is increasingly top-heavy, setting the stage for a potential collapse of the government finance system. All promises and entitlements will likely face a reckoning.
Yet, the swamp walkers in Congress will relentlessly attempt to maintain their influence, ensuring that they and their associates remain well-provided for.
In their desperation, they will once again rely on the Federal Reserve to unleash more money from the printing press, leading to inflated prices for everything, including chicken sandwiches, as the dollar loses value.
A true government shutdown may only arise when workers, including legislators, refuse to show up due to being compensated in worthless money.
This illustrates why the superficial downgrades by major credit rating agencies, the staged government shutdowns, and the hollow promises of spending cuts serve only the interests of the swamp walkers.
Consequently, the swamp walkers are content to perpetuate the status quo, avoiding any real change.
[Editor’s note: In today’s complex financial landscape, innovative investment strategies are more crucial than ever. Discover how to safeguard your wealth and maintain financial privacy with the Financial First Aid Kit.]
Sincerely,
MN Gordon
for Economic Prism
