The US debt has breached $14 trillion for the first time in our nation’s history and we are about to run our third consecutive year of budget deficits that exceed $1 trillion. In fact we are presently on track to run a deficit of over $1.5 trillion this year. Our current economy is running on printed paper and the rest of the world is well aware of what is going on.
As a result of our out of control spending the Standard and Poor’s rating service just downgraded the long-term US sovereign debt outlook to “negative” from stable. The ratings agency warned that there is a one in three chance that the US credit rating with be lowered from its current rating of AAA within the next few years. S&P is not confident that our government will be able to get these deficits and debts under control.
In addition, the IMF urged the US last week “to outline credible measures to reduce its budget deficit,” pressuring the White House to detail plans to ratchet down record debt levels. This is in addition to their February announcement about their plan to eventually use the SDR as the new world’s reserve currency. The IMF is saying to the US that the time is now to take action. But what are we going to do, cut entitlement programs when people need them the most? Or cut defense spending while we are involved in two wars and possibly a third with Libya?
Should the US have its credit rating downgraded, the rates that the US will have to pay to its creditors to borrow money will have to rise dramatically to offset the risk (which we cannot afford). Countries aren’t exactly lining up to buy our debt now. The Federal Reserve is currently purchasing 70% of all US Treasuries offered for sale. So if the risk is perceived to be even higher, who will come to buy our debt then? This posses a serious problem, because the Fed cannot continue to buy our debt indefinitely.
We can no longer ignore the fact that our country is in a precarious situation. If we cannot get our spending under control we are in serious trouble. Just the defense spending portion of the budget is close to $900 billion per year which is not likely to be reduced anytime soon, and that is only a portion of the over $3 trillion worth of spending per year. That is over $8 billion per day!
It seems to me that we are at the point of no return. We either need to pull out of all wars and get real about what is actually sustainable spending (what can we afford) or watch as the Dollar fades away into the background and we are forced to deal with the issue because the ability to print money has been stripped from us (we lose our status as world’s reserve currency).