The S&P credit rating downgrade of the United States of America demands our attention. It is the first time in the history of credit ratings that the US has lost the Triple A standard. Some are calling it momentous. Others are arguing that it has been a long time coming and that it was inevitable.
Let's try to get some perspective on the downgrade.
Firstly, it portends a spiralling economic decline. The cycle becomes quickly vicious, as Greece is now discovering--and Italy is about to. A nation which enjoys the highest credit rating in the world is able to borrow at the lowest global interest rates because it represents the least risk to the lender. The most credit worthy nation--or the nations with the highest credit rating--are able to borrow close to the "risk-free" rate. But with the highest credit rating, borrowing costs are lower right throughout the nation: for businesses, individuals, and government agencies. When a credit downgrade occurs, the opposite is the case. Borrowing costs for everyone rise over time. Access to capital becomes more difficult. Economic growth becomes structurally more difficult. Economically speaking, the tide is receding.
The reverberations of the US sovereign debt downgrade are rapidly working their inevitable way through the entire economy.
The agency also lowered the ratings for: farm lenders; long-term U.S. government-backed debt issued by 32 banks and credit unions; and three major clearinghouses, which are used to execute trades of stocks, bonds and options.
All the downgrades were from AAA to AA+. S&P says the agencies and banks all have debt that is exposed to economic volatility and a further downgrade of long-term U.S. debt. Their creditworthiness hinges on the U.S. government’s ability to pay its own creditors. . . .
Monday’s downgrades of the mortgage giants Fannie and Freddie reflected their “direct reliance” on the U.S. government, S&P said. Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. As part of a nationalized system, they account for nearly all new mortgage loans. Their downgrade might force anyone looking to buy a home to pay higher mortgage rates.
Officials at Standard & Poor’s say they will also indicate shortly how local and state governments will be affected by their decision on Friday to lower the long-term U.S. debt from AAA to AA+. . . . The downgrade of long-term debt issued by the U.S. government affects the banking and lending industries because many interest rates are pegged to the yields on Treasury securities. In addition, many companies use the securities as collateral that they would surrender if their bets lost value. The lower credit rating for long-term U.S. debt means that it might be considered less valuable for those purposes. It might become more costly for companies to borrow or trade.
Secondly, the cause of the US downgrade is entirely human--which is to say, in this instance, political. Some politicians in the US have sought to deflect blame by conjuring up the Japanese earthquake and tsunami, the previous President, the cost of fighting three wars and so forth. But there will always be earthquakes and typhoons. The brutal fact remains is that American citizens have wanted their governments--at both state and national level--to do more for them. They have dethroned the Lord Jesus Christ, and enthroned Political Man. They have supported politicians who have channelled money to them--paying their living expenses in multifarious ways. Government spending has thus grown exponentially, for the list of grievances and needs is without end. In the end, the money has run out--there are just not enough taxes revenues to feed government's rapacious appetite to spend money satiating voters' indulgence, envy and greed.
When politicians seek to bribe electors, and voters confirm they are willing to be bought off, you have birthed a Leviathan. It may take decades to grow into a fearsome, uncontrollable monster--but its future wrath and despite is unavoidable. Once you start the bribery game, everyone becomes quickly corrupted. It cannot be stopped or reversed. Why? Because people are unwilling to vote harm to themselves. In order to do that requires a higher law over both men and their rulers which condemns both state and electors for bribery. You need enough people to believe and fear God if they do not obey His law.
These conditions do not exist--ergo, the US government will continue to spend money it does not have. Credit ratings will ratchet down. Creditors will demand higher interest rates. Eventually the money will run out. Economic ruin and poverty will be the inevitable outcome. All of this has been signposted by the recent ratings downgrade.
Some wag recently observed that a growing number of illegal immigrants are now making their way across the border back down to Mexico in search of the American Dream. Unemployment in Mexico is now far lower than in the US. We will likely see more of this.
But the point we have to realise is that this lingering terminal disease is man-made. It has been caused by several generations of foolish self-indulgent men who believed they had rights--demand rights that the government had to satiate. Politicians, seeing a way to grasp and keep power, agreed. We have not moved very far from venal Roman emperors throwing out bread to the plebs to keep them happy so as to maintain their grasp on power.
Thirdly, the US credit rating downgrade--and the decline that it portends--are inevitable because the US has portentously tried to defend the globe. This breathtaking hubris, and the implicit self-aggrandizing it represents, means that--just as was the case in Rome--the cost of Empire eventually becomes too great. But national pride and vainglory are too powerful, too seductive, to allow the United States to downscale its global entanglements. It cannot bring itself to become just a global power--one amongst many--but is self-compelled to maintain a pseudo-superpower status.
When the Roman Empire began to implode it first showed up at the outposts of Empire as marauding barbarian tribes began to pick off the exposed and vulnerable parts. The US shows signs of being at that point now. But whilst the right wing may rail against over-bloated government, it is unable to give up the idolatrous pretensions of "making the world safe for democracy" and of insisting that the United States display its "exceptionalism" and its "manifest destiny" of being the Defender of the Free World.
The ratings downgrade is a portend, a sign. Clearly it is not unexpected. Clearly it will not be the last. Unless--and this would be an unexpected outcome--a clear majority of electors in the country show it prefers self-denial and pain to continuing to feed its self-indulgence.
We continue to believe very firmly that the tide will eventually turn in the United States and throughout the West in general. But not before a great deal of pain and humiliation, we fear. Restoration comes through humility before God and repentance. Right now, we still think we can get ourselves out of this. Our faith and hope remains Man--scientific, rational, smart, clever, resourceful Man. We still believe we can show God a thing or two.
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