It Has Come To This

The mismanagement of the budget and its impact on the economy by those in both parties in Washington has led to this – being lectured on fiscal responsibility by the Red Chinese and ex-Communists in Russia.

First, Vladimir Putin, Prime Minister and former President of Russia, earlier this week said the United States has been living beyond its means like a “parasite” on the global economy.

Next, the Chinese, through their official Xinhua News Agency, were quite blunt regarding the downgrade of the United States credit rating by Standard and Poors. The full statement is below and it is harsh.

BEIJING, Aug. 6 (Xinhua) — The days when the debt-ridden Uncle Sam could leisurely squander unlimited overseas borrowing appeared to be numbered as its triple A-credit rating was slashed by Standard & Poor’s (S&P) for the first time on Friday.

Though the U.S. Treasury promptly challenged the unprecedented downgrade, many outside the United States believe the credit rating cut is an overdue bill that America has to pay for its own debt addition and the short-sighted political wrangling in Washington.

Dagong Global, a fledgling Chinese rating agency, degraded the U.S. treasury bonds late last year, yet its move was met then with a sense of arrogance and cynicism from some Western commentators. Now S&P has proved what its Chinese counterpart has done is nothing but telling the global investors the ugly truth.

China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets.

To cure its addiction to debts, the United States has to reestablish the common sense principle that one should live within its means.

S&P has already indicated that more credit downgrades may still follow. Thus, if no substantial cuts were made to the U.S. gigantic military expenditure and bloated social welfare costs, the downgrade would prove to be only a prelude to more devastating credit rating cuts, which will further roil the global financial markets all along the way.

Moreover, the spluttering world economic recovery would be very likely to be undermined and fresh rounds of financial turmoil could come back to haunt us all.

The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone.

It should also stop its old practice of letting its domestic electoral politics take the global economy hostage and rely on the deep pockets of major surplus countries to make up for its perennial deficits.

A little self-discipline would not be too uncomfortable for the United States, the world’s largest economy and issuer of international reserve currency, to bear.

Though chances for a full-blown U.S. default are still slim now, the S&P downgrade serves as another warning shot about the long-term sustainability of the U.S. government finances.

International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.

For centuries, it was the exuberant energy and innovation that has sustained America’s role in the world and maintained investors’ confidence in dollar assets. But now, mounting debts and ridiculous political wrestling in Washington have damaged America’s image abroad.

All Americans, both beltway politicians and those on Main Street, have to do some serious soul-searching to bring their country back from a potential financial abyss.

It is a sad day for our country when our old Cold War adversaries make more economic sense than do President Obama, Treasury Secretary Timothy Geithner, and the rest of those in Washington who stood in the way of deeper budget cuts.

6 thoughts on “It Has Come To This”

  1. If we stopped issuing so much debt, where would the Chinese park their billions/trillions in order to avoid inflation and keep their goods cheap and currency devalued?

  2. I hate to say it, but your last line only addresses half the issue, and is symptomatic of how we got here. It's not just Nana's Kung Pow Chicken and Socialist Party that got us here. Equally responsible are Mama's Tea House and Theocratic Society who'd rather push a convenient idea of "no new taxes" than face the problem in a real way.

    Do taxes suck? You betcha. Can we solve the huge, overwhelming, crushing debt number without them? Nope. Suck it up, half the guys who got this started had "R"s after their names, as misplaced as the letter may have been.

    BOTH idealogical parties need to get over themselves and get out of the way.

  3. It just says so much when a commies understand markets better than our leadership does.

    At this point, there are no ways out. Tax the rich? You could take 100% of everything they have and not even pay for a year of deficits.

    We need to cut spending by vast amounts – I'm talking 30 to 40% across the board. That will cause horrible suffering among the Free Sh*t Army. Not doing so will cause even more suffering, when we either collapse or undergo hyperinflation – or both. In that case, they'll get their benefit check or social security, and a month's check will buy a stick of gum.

  4. @Ken: Do not confuse revenue with taxes. A rise in the marginal tax rate for individuals and corporations would probably result in lower revenues. Moreover, it would stifle what little economic growth we currently have.

    When the long term capital gains rate was lowered in 2003, revenues increased. Investors could now afford to sell stocks with significant unrealized gains.

    U.S. companies are sitting on $1.2 trillion in cash. Half of this cash is sitting overseas because the companies will be taxed on it if it is repatriated to the U.S. If this money were put to productive use in business expansion, think how many jobs it could produce. Moreover, think how much revenue it would produce with all the new income being produced and taxed.

  5. @John: You do have a point about the revenue v. tax rate distinction, and I did mean that we need to increase revenue. I was upset when I posted and barely awake. I stand by my greater point, however.

    It seems to me that private business' choice to use a tax haven and sit on liquid assets and screw the US recovery, is more a reaction to instability in the markets and the increase in talk of regulation than any true fear of marginally higher taxes. Steve Winn said as much in his speech on the subject just a few weeks ago (though he's more having a fit over ObamaCare's provisions forcing him to actually give health care insurance to his workers instead of working them 38 hours a week and calling them "part-time" to skirt regualtions). (That should not be read as support on my part for ObamaCare, just an observation that he's one of the true jerks one provision was aimed at.)

    The activity in 2003 was the result of deregulation making them think it was a great time to get away with something, and it was, and they did. We're paying for it now, while their profits sit off shore, as you pointed out.

    I don't see how a change in our tax rate would effect that behavior one bit, you're right, but because of that I also see no other clear way to raise revenue without another round of deregulation, which just sounds pretty damn horrible at the moment, from our current viewpoint of the bottom of the hole dug by the last round.

  6. @Ken I agree with your comments. I will add, blame goes to BOTH parties.

    If you like it or not, this childish behavior from Congress shows a lack of respect for the American people. Remember these people when you mark that ballots. I will not vote for someone JUST because they support gun owners.

    This has just gotten out of hand when the Chinese and Russians can actually criticize us and be close to the target! My view. YMMV

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