August 8, 2011

America's Debt is a Ticking Time Bomb

POLITICS - The United States economy is sitting on a ticking time bomb which could strike at any time... its called a $14.35 trillion National Debt.

Earlier this week S&P downgraded the USA from its AAA rating to AA due to Republican unwillingness to cooperate with debt payments. It is the first time in world history that the USA has been considered a risky investment. The lowered rating means investors will be less likely to loan the USA money in the future, putting the USA one step closer to bankruptcy and financial collapse.

Only 16 of the 126 nations whose debt is rated by S&P earn its coveted triple-A rating, Canada among them. Republican unwillingness to pay off the US debt by raising taxes has led to a level of brinkmanship that is bordering on financial collapse just so they can blame Barack Obama if the economy turns sour.

But its not Barack Obama's fault this is happening. Its the fault of Republicans in Congress being wishy-washy on the best way to solve America's debt problems.

The USA can't cut social programs because that will hurt government jobs. One Republican proposal calls for the cutting of approx. 2 million American government jobs for the next 8 years. Cutting 2 million jobs would devastate the US economy.

The ONLY solution is to start raising taxes on the rich. The poor cannot take the pinch right now because the economy is too fragile, but the rich could certainly tighten their belts.

Meanwhile China’s central banker, Zhou Xiaochuan, is depicting the American debt as a threat to the world economy. “Big fluctuations and uncertainty in the U.S. Treasury market will influence the stability of international monetary and financial systems, thus hurting the global economic recovery,” the chief of the People’s Bank of China said last week. China is the world’s largest creditor nation and America's biggest lender.

Zhou says: “We hope that the U.S. government and the Congress will take concrete and responsible policy measures . . . to properly deal with its debt issues, so as to ensure smooth operation of the Treasury market and investor safety.”

In other words Congress needs to stop playing with matches.

The Xinhua News Agency meanwhile is calling Republican unwillingness to tax and pay off debt a “madcap farce” and called the American National debt a “ticking bomb”.

Especially since the USA will now have to pay higher interest rates on its riskier debt.

We should note however that America can recover.

S&P downgraded Canada in 1992, when Canada was too nonchalant about a record $43 billion deficit and didn't seem to have any goal to pay it off. S&P did not restore Canada's triple-A status until 2002, after 11 years of consecutive budget surpluses and clear efforts by the government of Jean Chretien to pay off a large chunk of the Canadian National Debt.

Thus we know from experience that it can be done.

The difference however is that Canada is a resource (mining, lumber, oil) driven economy... whereas the USA is manufacturing based... something the USA has been losing in recent years as more factory jobs go over to China and India.


The USA needs to cut taxes on manufacturing and raise taxes on the fat cats in Wall Street.

The only problem is that its Wall Street which is running the show in Congress. The White House and the American people are helpless to stop the corruption that is going on.

Americans need to be making products again. This era of stock brokers moving money around and not actually building anything while taking a percentage is hurting the US economy and its not sustainable.

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