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The United States is broke and in debt. The only people who refuse to understand that reality, and who refuse to care, are the big spenders in Congress and the White House. Disaster approaches, and what informed citizens want to know is exactly when the hammer will fall on our currency and economy. Now Moody’s Investor Service has given us a clue. First, some background.

We all know the U.S. issues and sells bonds at over 200 public auctions each year. These bonds are sold on the open market and are essentially loans to us from other nations (like China) and private investors (like banks and individuals). These lenders buy the bonds and expect to be repaid after a fixed period, say, 30 years. Meantime, they collect interest. The money Washington gets from taxes, and money raised from bond sales, is used to pay for everything in the budget, from two ongoing wars to Social Security and Medicare, and to pay that interest. Since America enjoys a “AAA” credit rating now, the interest Washington pays buyers of these bond loans is low. As this is written, the interest on a 30-year bond is 4.49 percent.

Because of prodigious spending by a congress that obeys every whim of a profligate White House, the debt these bonds represent grows astronomically. If spending continues at the present rate, by the year 2020 all taxes and fees the government collects will not be enough to pay interest on the debt and still fund budget obligations and entitlements, like your Social Security check.

Obviously, 2020 is not a deadline cast in concrete, and investors in the bond market will act long before it arrives. It is also obvious that investors will raise the interest rate they demand from a deadbeat borrower—if they will lend to us at any rate of interest. The signal that sets the markets on fire is when the U.S. credit rating drops from AAA to AA+ or lower.

Note: Reader Comments: Submit Your Comment (2)

First rate column. Trenchant and concise. Bravo!

posted by : hidari
Tuesday, May 18, 2010 at 01:52 AM

Very good article. Just one problem; Washington isn't reading it, and could care less. Everybody in the world seems "to get it" except the people who are actually causing the problem, and the only ones who have the power to do something about. It all defies logical explanation. The only thing, that my frustration and absolute disgust with the regime in Washington, comes up with, is that Obama, Reid, Pelosi and and their ilk just don't care. They are purposely tearing down, with a scorched earth policy, everything about this great country. When everything is destroyed, they plan on building their own Socialist Utopia whether we like it or not. None of us peons know what is good for us, we are all stupid idiots, and not members of their enlightened group of Aristocrats. Just look back through history, and you'll see every century produces the same type elitists, who in rabid fury, and along with Lucifer, shake their fists in the face of God, and shout in one voice, "I will not serve!" History is full of two bit dictators who live for unbridled power, and bring untold misery and suffering on the people they are susposed serve! As the saying goes, History repeats itself for those who ignore the past.

posted by : Richard C Wagener
Tuesday, May 18, 2010 at 02:52 AM

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