It is stunning that, after congressional communications and meetings with the top bond rating agencies, the July 26th Reuters article reporting the unabiguous pronouncements from the International Monetary Fund (the basis of my article yesterday), and other such reporting by financial news services around the world, Democrats are still oblivious to the nearly total lack of relevant substance in their highly touted deficit reduction and debt ceiling plan.
All of the reporting described above uniformly specifies the necessary components for a “credible” fix for the US deficit and increasing debt level troubles, born particularly from the analyses of the debt crisis spreading across the European Union, in Greece, Ireland, Italy, Spain and Portugal, playing out before the already nervous financial markets of the entire industrialized world.
Yesterday our article went to great lengths to devine and define the specific points the world markets require from the US in order to avoid a bond rating downgrade: a [simultaneous] serious reduction in annual spending to reduce the budget deficit, a “quick” [adequate] raising of the debt ceiling, and the fiscal year 2012 (begins October 1, 2011) implementation of a “medium-term, comprehensive plan” to reduce entitlement and healthcare spending, and “tax expeditures”–which translates to unnecessary individual and corporate “tax-loopholes”–to raise revenue, but not increase tax rates for either set of tax payers, so as not to inhibit job creation and economic growth.
As reported by Dustan Prial in his Fox Business article today, omminously titled Downgrade Day: What It Will Look Like, “all of the big three credit rating firms–Standard & Poor’s, Moody’s Investors Services and Fitch–are threatening to downgrade U.S. debt if Congress fails to address the massive debt load and budget deficits that imperil this country’s long-term financial stability.”
The IMF and ratings agencies have done everything they can do, save for pouring ice water over the head of Harry Reid and the Democrats, to signal that their highly touted “plan” would not be enough to forstall a U.S. debt-rating downgrade. As an example of what this would mean, accordingly to recent figures published by Bloomberg Data, showing interest rates on Italian government 10 year bonds rose to 5.50% after a rating agency downgrade, as opposed to the 3.00% interest on equivalent German government bonds. This provides the possible magnitude of an interest rate increase should there be a downgrade to U.S. debt, which would result in our borrowing costs rising by 50% or more immediately adding $120 billion to our budget deficit.
If the Reid plan wins out over the Republican’s “Cut, Cap and Balance” plan, which has already cleared the House with bi-partisan support but was not even brought up by the Senate, declared by Harry Reid to be “Dead, Done, Over”, the debt-ceiling will raised enough to provide for spending through 2013, and they will enjoy a widely publized celebration.
But, before the ink dries on the President’s signature on this newly passed Democrat bill, the rating agencies will no doubt announce the first U.S. bond rating downgrade in history.
So, the Democrat’s party might not even get started, because once the U.S. debt rating downgrade is publicly announced, the electronic markets around the world would suffer a massive sell-off of stocks and bonds. In fact, according to a quote in Mr.Prial’s article from Greg McBride, senior financial analyst at Bankrate.com, “It starts instantaneously; You won’t be able to grab a cup of coffee before the selloff gets underway.”
Trillions of dollars in stock and bond market value will be erased, affecting the balance sheets, and perhaps even the solvency of every bank and company around the world.
But, equally, if not more importantly to the celebrating Democrats, is the fact that the very same thing will happen to the all of the pensions, retirement accounts, savings and investments of every single American voter.