Although none of the three credit rating agencies have yet downgraded US debt, all have issued threats that they may do so if the US does not get its financial house in order. The chances of the US getting its “financial house in order” are not good.
Consider these headlines across the country: “Social Security IOUs due, Retirement program faces $29 billion shortfall in 2010.” This, of course, is on top of all the money being spent to “stimulate the economy,” to fight two wars and to extend unemployment benefits.
For decades, workers poured money into the Social Security Trust (sic) Fund, creating a “surplus,” a surplus defined as SS tax receipts in excess of expenditures. No actuarial planning was done, based on the life expectancy of the members of the plan, as would have been the case had the SS fund been a private annuity plan. So, seeing all those dollars pile up, our representatives in Washington liberalized benefits and added to the rolls as they sought to buy votes, creating still greater liabilities for the SS Fund. But, that was not the really bad news.
Despite the liberalizing of benefits, the baby boomers’ taxes poured into SS coffers, creating a trust (sic) fund that officially stands at $2.5 trillion. However, the $2.5 trillion does not really exist. Congress spent the money and issued non-salable IOUs that can be redeemed only via Congressional action.
The SS Administration cannot simply sell their bonds as can a bank that has purchased US Treasuries. So, this year Congress will have to take action for the SS Administration to come up the $29 billion shortfall. As presently calculated, the Trust Fund will be emptied in 2037, unless benefits are reduced and/or SS taxes are increased.
The dire straits of Social Security have been known for decades. Yet nothing was done. So, how is it that the three credit rating agencies can say (unless tongue in cheek) that the US needs to get its financial house in order and expect anything to happen?
According to the Financial Times, investors “remain unconcerned that the US (debt) will be downgraded . . .” because the US economy remains the world’s largest and the dollar remains the world’s reserve currency. “This is important as it means central banks and investors will still need to buy its debt.”
Two thoughts arise when considering how blithely people dismiss the current state of financial affairs in the US. One, few Americans realize that our financial systems is nothing but a house of cards, which means they are really vulnerable to its fall.
Two, the supposedly informed people know how bad things are, but they want to keep the uninformed in the dark as long as possible because the longer the uninformed are kept in the dark the easier it for the informed to protect themselves (buy gold and silver at low prices).
I suspect the informed are quietly buying gold and silver while denigrating those who do. When the collapse starts for real, it will be very difficult to move into the metals. Investors who bought precious metals in the wake of the financial crisis of 2008 experienced just how hard it was to get gold or silver in any form. It is much better to repair the roof before the rain starts.