What yesterday told us

Tuesday, August 9th, 2011 and is filed under Blog

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What yesterday, August 8th, told us was that, unlike politicians, markets don’t spin facts. Markets react to various forces and to some extent, it’s pretty cut and dried. The politicians in Washington, DC (Democrats AND Republicans) decided to kick the can down the road, no real cuts were made, entitlements were not reformed, the cruise control on the car was set to 60mph instead of 80mph and we’re still headed over the financial cliff.

Enter the would be Great One to explain things yesterday and poof, the markets dropped in real time as he spoke.

Some are asking, “Why?!”

Debt and credit ratings. It’s that simple. Credit ratings are based on the ability to pay off debt and stay financially stable. Or, if you are financially stable, you receive a good credit rating because the lender knows you have the ability to pay off debt. In case you missed it, it’s a circle and can be a vicious one if you do not have the ability to pay off debt. It’s even worse when you have trouble paying off debt and keep spending more and more money.

Which is where we are as a nation. As our debt continues to grow, credit agencies like the S&P, Moody’s and Fitch grow nervous as the baseline problem is not dealt with and unconstitutional super committees are set up to “address” the problem. If ever there was a DC solution to a crisis, it is a committee (how’s that for leadership?). This committee, however, is not set up to curtail spending and solve the debt problem. It is there to grow government. All this talk of the committee cutting spending is pure bunk. Under the proposed debt ceiling deal, our national debt will grown by $10 trillion over the next 10 years. But, the good news is the committee will cut $2.5 trillion of that. Big, big sigh of relief there to think that our national debt will not grow by $10 trillion. Just $7.5 trillion. And there is nothing like fake cuts to make me rest easy at night.

Of course, we could follow failed Fed Reserve Chairman Alan Greenspan’s advice and just “print more money,” but . . . .

(cross posted at AmericanMajorityAction.org)