Around the world, starting Monday, all eyes are on the markets. The tension is palpable. The uncertainty is ample. And anger is heavy in the air. As predicted, the debt ceiling deal was not only NOT enough to assuage economic fears, it actually exacerbated them, triggering a flight from the Dow, and creating a decisive opportunity for ratings agency S&P to cut the once perfect U.S. credit rating from AAA to AA+.
At Alt-Market, we often talk about points of balance, and how certain moments in history become highly visible indicators of balance lost. If we pay close attention, and know what we are looking for, these moments can be recognized, allowing us time to shield ourselves from the explosion and the resulting financial shrapnel. The past two weeks have culminated into one of these defining events that tell us the tide has fully turned, and something new and dangerous is just over the horizon. The question now is; what should we expect?
The nature of the credit downgrade situation is not necessarily “unprecedented” in history, but it is surely unprecedented on the scale we see currently in the U.S. It is difficult to predict how exactly the investment world will react. Some consequences, though, are probable, if not inevitable. Let’s examine the events we are likely to see in the coming weeks as well as the coming months, as nations attempt to adjust to America’s final plunge…
1) Ratings Agencies Under Attack
This has already begun. Italian authorities have raided the offices of S&P and Moody’s, apparently perturbed that their credit rating is not under their control. The U.S. is accusing S&P of making "accounting mistakes” and jumping the gun on the American downgrade. The battle between insolvent governments and the ratings agencies from here on will escalate quickly. More offices will be investigated and raided. The mainstream media will try to assert that the downgrades are “not that important”, and that the U.S. will recover quite nicely without a perfect score. Eventually, as the collapse becomes more evident, ratings agencies will fill the role as the go to scapegoat / economic hitman at which all governments will point accusing fingers.
“S&P is gonna’ cut you man! S&P’s a blade-man, man!”
In my view, it’s all theater. First, let’s set aside the recent ratings cuts altogether and look at the facts. The U.S. should have been downgraded years ago, especially after the Federal Reserve decided to begin purchasing U.S. Treasury Bonds in place of dwindling foreign interest and turned to monetizing our debt to the point of rampant inflation. Italy and numerous other EU members should have been downgraded to junk status a long time ago as well. If anything, the ratings agencies over the past few years have been PROTECTING the credit reputations of many countries which in no way deserve it. The recent downgrades are long overdue…
Second, suddenly governments and MSM pundits feel it necessary to point out the large part ratings agencies played in the derivatives bubble and subsequent credit crisis? Please! They were perfectly content with S&P or Moody’s giving fraudulent top ratings for toxic garbage securities, and even defended agency actions after the bubble burst! Now, after they finally start doing their jobs by downgrading bad debt, governments want an investigation?
Third, ratings agencies were not alone in the creation of the derivatives bubble. The private Federal Reserve artificially lowered interest rates and flooded the markets with cheap fiat. International banks used this fast money to create the easy mortgage groundswell and the derivatives poison that was fed it into the system. Ratings agencies went along with the scam and graded the worthless securities as AAA. The federal government and the SEC allowed all of this to take place by purposely ignoring the crime and refusing to apply existing regulations in investigating the fraud.
The Bottom line? You CANNOT create an economic crisis like the one we face today without collusion between big business, government, regulatory bodies, and ratings agencies. The Obama Administration is well aware of this, and the attacks on S&P are nothing more than a show. S&P is not to blame for the downgrade this past weekend. They are ALL to blame.
2) Increased Borrowing Costs
While the mainstream will attempt to downplay the effects of a U.S. downgrade, they cannot deny that our country’s borrowing costs have just gone up. This causes several unfortunate circumstances to develop. Our ability to continue funding our liabilities is now greatly diminished, unless we turn to the Federal Reserve even more in the purchasing of treasury bonds. If investors and central banks can’t get AAA protection for their money in America, they will simply turn to other countries that still retain a top credit rating. The safety of dollars and treasuries already held by other countries will come under question. In response to the S&P downgrade, China, our largest creditor, has openly stated that U.S. securities can no longer be trusted, and that the dollar must be replaced as the world reserve currency. If the dollar does not take an immediate dive starting this week, it certainly will over the course of the Fall season. There are, indeed, many direct consequences in light of a U.S. downgrade. Anyone who says otherwise is living in dreamland.
3) European Union Feeling The Pain
The EU is on a direct interception course with disaster, just as we are, however, being that the U.S. dollar is a widespread world reserve currency, all nations will be affected by our particular downgrade, as opposed to the Greek downgrade, for example, whose effects were minor in comparison.
The European Central Bank has initiated its own TARP measures, and due to the quickening implosion of Spain and Italy, is fully prepared to print fiat Euros in a desperate attempt to control the damage. European reliance on the American consumer has proved fatal. The result is an ever expanding avalanche of fiat on both sides of the Atlantic in an insane race to the bottom between our respective currencies. This development fits perfectly with the IMF plan to introduce Special Drawing Rights (the SDR) as the new global reserve currency, though I’m sure it’s all just a coincidence…
The ECB is also facing serious resistance from Germany, which has been shelling out the largest portion of bailout funds for countries like Greece, Ireland, and Portugal. Germany is tired of playing sugar daddy to the EU, which could conceivably lead to a breakup of the union itself, even with the implementation of fiat injections.
4) Blame Game Overdrive
The blame game is about to get ugly. When economic catastrophe is on the line, civility goes out the window. Who will be the primary target besides ratings agencies? Why fiscal conservatives, of course! Obviously, the Tea Party is full of “terrorists”, and real conservatives are the true culprit behind the collapse because we have this annoying tendency of pointing out that our spending addicted government is dragging us hogtied on a speedboat to Hades.
Please, America, don’t blame the Federal Reserve for feeding the derivatives bubble and destroying our currency. Don’t fret over global banks like Goldman Sachs that deliberately conjured the credit crisis. Don’t attack the government for lending a helping hand to these entities in their quest for complete financial centralization. Instead, shoot the messenger. We love that…
5) Drastic Measures
An announcement by the Fed of yet a third QE stimulus package is a certainty. If the market reaction is especially negative this week, an announcement could even be made before this month is out. I have no doubt, QE3 will be the undoing of this country. Any further devaluation of the dollar will NOT be tolerated by creditor nations who have much to lose if the process of U.S. inflation continues. Treasuries will be dumped. The dollar will be dumped. And, America will have little choice but to hyperinflate to keep up with rising debt burdens.
Those who believe that the U.S. is not expendable in terms of the world economy, and believe that foreign nations will continue pouring money into our coffers because they “have to”, are kidding themselves. We are dealing with an engineered global shift. For central bankers, the U.S. economy is no less expendable than an aging sports car. It can easily be replaced with something newer, shinier, and more compact. Something that will get more girls. The call for “international regulation” of U.S. finances will become the rallying cry of elites across the planet, as well as the largest holders of our exponential debt. The current system will be sacrificed to make way for an IMF controlled body of unaccountable economic overseers.
This is not theory. This is not conjecture. This is reality. The credit downgrade of the U.S. is a concrete trigger point that sets all of the above proceedings in motion.
People will ask for hypotheses on time frames for the events above. I don’t have any, though this week’s market attitudes will be revealing as to the speed that events will take shape. So many interacting factors are present that any specific time predictions on the progress of collapse would be unrealistic. For the short term, watch Federal Reserve activity carefully. Introduction of new QE will be extraordinarily volatile. For the long term, watch wholesale and retail prices of goods, along with treasury auctions and foreign flights from U.S. bonds. One thing is certain, the final half of 2011 will be remembered as a historical turning point for us all. That said, the trials ahead were never the issue. That which is most important is how we RESPOND in these moments. How we adapt. How we function. How we fight back. Disasters do not make history. We make history. As overwhelming as the currents of such events may feel, in the end, they are subservient to the actions of resolved men. Nothing is fated. The conclusion depends upon us.
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written by ChrisBeckman , August 07, 2011
Well written and more importantly well said.
written by Brandon Smith , August 07, 2011
@Ande
Unfortunately, you are suffering from a case of false left/right paradigm confusion.
The Tea Party started under Ron Paul back in 2007-2008, when the credit crisis began, so they can hardly be held accountable for the current debt problems of the U.S. IN FACT, we were trying to stop exactly what is happening today.
You need to learn the difference between a Neo Conservative, and a true conservative. All of the problems you describe were exacerbated by NEO CONSERVATIVES, like Bush 1 and 2. Neo Conservatives (or Rhinos) are actually socialists in their ideology, and have little to no connection with legitimate conservative philosophies. They, like Obama, are globalist proponents and seek to widen the existing crisis.
To lump in true conservatives with neo conservatives shows a lack of understanding of the underlying nature of the sham of American politics.
written by burger , August 07, 2011
do you think war is likely when creditor nations lose their patience?
written by Brandon Smith , August 07, 2011
@Ande
Every major economy with such entitlement programs is IN DECLINE, especially European countries with higher taxes. The debate over whether entitlement programs are good or bad is irrelevant. The bottom line is; what can we afford. At this point, we can afford very little.
What about the Tea Party's views on tax breaks? Most of their objections have been to Obama policies that target the middle class, NOT the ultra rich. We can hold up the rich boogie man card all day, but it doesn't change the fact that most government tax legislation is pointed at the middle class. Fiscal conservatives oppose such actions, and then they are accused of "protecting the rich". Its a bunch of deluded marxist crap, to be frank.
Where are we going to get the money to pay for even bigger government? Tax the rich until they are poor? You don't seem to understand how the income tax works. Every penny of the income tax haul is spent on the debt created by our dependence on the Federal Reserve. Not one cent goes towards infrastructure or entitlement programs. So, taxing the people more, even if they are "rich people", is ultimately pointless.
It is this exact mentality of tax and spend government that created the conditions for collapse in the first place, as you have already agreed by accusing the spending policies of Neo Conservatives as a trigger for collapse.
Also, your assumption that such programs are necessary is just that; an assumption. It has become obvious (to anyone paying attention today) that socialist ideals lead to failed economies. I don't agree with everything the Tea Party does, but I do agree that the concept of a tax and spend nanny government is an illusion. I applaud them for confronting such illusions "for ideological reasons". At least somebody has the guts to. With smaller government, an end to the pointless wars in the Middle East, an end to the Federal Reserve, and limited taxation mostly administered by the states, there would likely be no need for most entitlement programs.
Yes, economics is and always will be influenced by political ideologies. That is unavoidable. The best we can do is apply an ideology which is least intrusive upon the natural flow of trade, and the individual in general. True conservatism is the only ideology in existence today which comes close to achieving this.
written by Marlena , August 07, 2011
If these stimulus pools were being distributed into the actual economy by the conduit of lending to sub-globalist sized enterprises rather than just as fat at the bank, then hyper-inflation could be time lagged.
Unfortunately it is a bad sign over all, they are stuffing the crony banks with crash insulation, and others internationally and in America for market juicing which cannot be tracked, and must be much larger than the fake audit that the Fed all of a sudden allowed, what a bunch of morons they must consider the average American to be, and I guess it is correct.
The dangerous thing is now the oscillating pattern of juicing, and the power of contraction actually in the system, still attached to the string pullers, and under the facade of a completely different looking motive. Remember in this game, playing with the global masters of swindle confidence, NEVER trust the public manufactured opinions, or the validity of the scape-goats which will be presented, that is a smokescreen for the diffusion effect of having 10K opinions and only one real truth to keep your eyes on; they obviously are hiding something, and it is working.
Remember that the only way out of this mess for the "masters of cheat" in the Anglo-American Quasi-Israeli psychopath for profit head factories, is war. The only way they can extend their 300 year old illusion of bloodshed and missiles for profit which everyone and his mother fell for and swallowed, of pumping up America with pure fiction to become the de-facto economic steroid freak, and the eventual use of their real investment, the 1000+ global, 50 trillion dollar bases and technologies of destruction peppered in geo-positioned fashion, is to go horrific globally.
It's soon time to start the violent absorption of the world, and an America is just another global pawn and knight kill to be made and reclaimed, and all this leading into it, is a two sided illusion game to keep America and others stupefied in the shrapnel, never putting real reality together because it's hard to detect, and it is easy to reject once seen, because it is ugly, it is potentially the end of the world everyone warned us of since Hiroshima.
It's days of global Karma, and cosmic retribution re-visiting upon another global empire which floats on blood-money, and which suckers everyone into it's self-justification and hopes of continuing the criminal enterprise.
This one is going global naturally.
written by Apostle , August 07, 2011
Barring an invasion from China and Russia for tampering with their mid-eastern trading partners it is yet to be determined how a popular uprising in this country will play out.
It is evident that the fed as well as local government can see it coming but when people such as myself see the entitlements such as social security taken away after being forced to contribute our entire working lives there is no telling how the general public will react.
Whether by external forces or from the people themselves it is time for the old system to go away and the trials for the corrupt to go on for the foreseable future in perpetuity starting with judges and finishing with the highest office in the land both current and retired.
written by Martin Truther , August 07, 2011
Ok, so Bush and the neoCons got us into 2 wars that were BOTH probably unneccesary. This increased the federal debt ceiling, although still with much lower annual deficits than what we now have. I'll concede that. We just borrowed more money from China. If you research the debt ceiling, you'll see that this trend extends back into the Clinton admin too, regardless of how much the DemMedia claim that Clinton and/or Newt somehow fixed federal deficit spending.
But if you look at history a little further back, the highest income tax rate was increased by Hoover from 25% in 1930 to 63% in 1932. The lowest tax rate was raised from .375% in 1929 to 4% in 1931. The role those tax increases played in exacerbating the Great Depression is well documented, but for some reason that role is rarely mentioned today. So how is it raising taxes is going to do the trick now?
Last I looked, after 2.5 years of Hope/Change, we are still in both Iraq and Afghanistan (as well as Libya now and probably Syria, Somalia, etc. as coming attractions). So tell me again, how do these apparent priorities of the Dear Leader make any sense?
written by Balance isn't all bad , August 08, 2011
Granted that our deficit problem is primarily a spending problem and spending has to be much more drastically reduced, there is still room for tax reform. When one of our biggest and most profitable corporations, General Electric, has a tax bill of $0 and even gets back tax credits, there's plenty of room for improvement. Sure, leave rates alone, but close tax 'loopholes', 'targeted' tax breaks for specific industries, etc, to both simplify the tax codes and maybe even raise a little revenue. Might help move more spending cuts through congress as well.
There's also room to cut our defense spending without jeopardizing our national defense. We no longer need tens of thousands of ground troops in S. Korea, or an entire base staffed full time to do nothing but provide logistics for more ground troops we might send in some day. We have a carrier based in Japan that could be moved to Florida, where it would still be just as close to the Middle East where it spends half the year, but its support costs would be lower and the support jobs would be American. Things like this would only hurt the corps that profit from unnecessary foreign bases, but would strengthen our country as a whole.
While I support the Tea Party's calls for spending cuts, we should be prepared to cut defense spending too, and be willing to close a few tax loopholes.
written by Martin Truther , August 08, 2011
Isn't it odd how all those (including the Usurper himself) who keep calling for tax hikes under the guise of "balance" and "a balanced approach" steadfastly refuse to even consider a balanced budget amendment (much less an actual balanced budget)? So, tell me, moderates: where's the balance?
written by JT94947 , August 09, 2011
Apostle, you wrote "...it is yet to be determined how a popular uprising in this country will play out. "
Unfortunately, the uprisings have started. Most people do not recognize them for what they are. The US population has been divided into warring tribes based upon color, religion, national origin, and even sports teams.
The events at the Wisconsin State Fair should prove ample warning to the people of America.
I had hoped that people would band together and round up the bastards and bitches that betrayed the public's trust and hang them from every available branch and lamp post.
However, it looks like the breakdown will happen with most people fighting in the streets and allowing the criminal element to escape unpunished.
written by Bill Derberg2 , August 09, 2011
Despite what you see about the annual tax rates from the IRS, the fact is that most Americans did not file a tax return until World War 2. It was a tax only the uber-rich paid. I believe starting in 1941, the IRS required ALL people to file a 1040 form. What happened was that it was only a 2 year requirement. In 1944, the people werent required to file one, but most did because the expiration was not fully announced. Then the gov't knew they had a good thing going and the rest is history. I think the fed income tax has a 89% compliance rate.
