Long before the current financial crisis, nearly two years ago, a little-noticed cloud darkened the horizon for the US government. It was ignored. But now that shadow, in the form of a warning from a top credit rating agency that the nation risked losing its triple A rating if it did not start putting its finances in order, is coming back to haunt us.

That warning from Moody’s focused on the exploding healthcare and Social Security costs that threaten to engulf the federal government in debt over coming decades. The facts show we’re in even worse shape now, and there are signs that confidence in America’s ability to control its finances is eroding.

Prices have risen on credit default insurance on US government bonds, meaning it costs investors more to protect their investment in Treasury bonds against default than before the crisis hit. It even, briefly, cost more to buy protection on US government debt than on debt issued by McDonald’s. Another warning sign has come from across the Pacific, where the Chinese premier and the head of the People’s Bank of China have expressed concern about America’s longer-term credit worthiness and the value of the dollar.

The US, despite the downturn, has the resources, expertise and resilience to restore its economy and meet its obligations. Moreover, many of the trillions of dollars recently funnelled into the financial system will hopefully rescue it and stimulate our economy.

The US government has had a triple A credit rating since 1917, but it is unclear how long this will continue to be the case. In my view, either one of two developments could be enough to cause us to lose our top rating.

First, while comprehensive healthcare reform is needed, it must not further harm our nation’s financial condition. Doing so would send a signal that fiscal prudence is being ignored in the drive to meet societal wants, further mortgaging the country’s future.

Second, failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us.

For too long, the US has delayed making the tough but necessary choices needed to reverse its deteriorating financial condition. One could even argue that our government does not deserve a triple A credit rating based on our current financial condition, structural fiscal imbalances and political stalemate. The credit rating agencies have been wildly wrong before, not least with mortgage-backed securities.

How can one justify bestowing a triple A rating on an entity with an accumulated negative net worth of more than $11,000bn (€8,000bn, £7,000bn) and additional off-balance sheet obligations of $45,000bn? An entity that is set to run a $1,800bn-plus deficit for the current year and trillion dollar-plus deficits for years to come?

I have fought on the front lines of the war for fiscal responsibility for almost six years. We should have been more wary of tax cuts in 2001 without matching spending cuts that would have prevented the budget going deeply into deficit. That mistake was compounded in 2003, when President George W. Bush proposed expanding Medicare to include a prescription drug benefit. We must learn from past mistakes.

Fiscal irresponsibility comes in two primary forms – acts of commission and of omission. Both are in danger of undermining our future.

First, Washington is about to embark on another major healthcare reform debate, this time over the need for comprehensive healthcare reform. The debate is driven, in large part, by the recognition that healthcare costs are the single largest contributor to our nation’s fiscal imbalance. It also recognises that the US is the only large industrialised nation without some level of guaranteed health coverage.

There is no question that this nation needs to pursue comprehensive healthcare reform that should address the important dimensions of coverage, cost, quality and personal responsibility. But while comprehensive reform is called for and some basic level of universal coverage is appropriate, it is critically important that we not shoot ourselves again. Comprehensive healthcare reform should significantly reduce the huge unfunded healthcare promises we already have (over $36,000bn for Medicare alone as of last September), as well as the large and growing structural deficits that threaten our future.

One way out of these problems is for the president and Congress to create a “fiscal future commission” where everything is on the table, including budget controls, entitlement programme reforms and tax increases. This commission should venture beyond Washington’s Beltway to engage the American people, using digital technologies in an unparalleled manner. If it can achieve a predetermined super-majority vote on a package of recommendations, they should be guaranteed a vote in Congress.

Recent research conducted for the Peterson Foundation shows that 90 per cent of Americans want the federal government to put its own financial house in order. It also shows that the public supports the creation of a fiscal commission by a two-to-one margin. Yet Washington still sleeps, and it is clear that we cannot count on politicians to make tough transformational changes on multiple fronts using the regular legislative process. We have to act before we face a much larger economic crisis. Let’s not wait until a credit rating downgrade. The time for Washington to wake up is now.

http://www.ft.com/cms/s/0/5534bd04-3f27-11...?nclick_check=1

:potleaf: :smokingmakesyoucooler: :potleaf::smokingmakesyoucooler: :potleaf: :smokingmakesyoucooler: :potleaf:

Not a bad idea...

Bah, let the free market (see self interested corporations) handle it. They wouldnt do us wrong.

What we need is more tax cuts!
:logik:

The mark of a true jackass: everything's black or white.

Next time if you dont have anything to add, just dont respond.

a smilie would have impressed patsie more

The Perfect Storm...

Dollar Weakens on Rosengren Warning; Stocks, Futures Rebound

By Justin Carrigan

http://www.bloomberg.com/apps/news?pid=206...refer=worldwide

May 22 (Bloomberg) -- The dollar fell to a four-month low against the euro after Eric Rosengren, president of the Federal Reserve Bank of Boston, said America’s recovery may be “slow” and Standard & Poor’s threat to strip Britain’s AAA debt rating stoked concern that U.S. bonds may also be downgraded.

Stocks in Europe erased declines from earlier in the day as commodity producers climbed with oil and metals. U.S. futures rose after Sears Holdings Corp. reported an unexpected profit. Asian stocks fell after Lenovo Group Ltd. posted a wider-than- estimated loss.

The dollar declined 0.5 percent against the euro and 0.4 percent to the lowest in nine weeks versus the yen as of 11:38 a.m. in London. The MSCI Asia Pacific Index slipped 0.1 percent and Europe’s Stoxx 600 Index was up 0.2 percent. Futures on the Standard & Poor’s 500 Index gained 0.6 percent.

The pound weakened against all but three of the 16 major currencies after S&P lowered the outlook on the U.K.’s AAA rating yesterday to “negative” from “stable,” citing the nation’s slowing economy and growing debt burden. Governments around the world are selling more bonds than ever to battle the worst recession since World War II. The U.S. Treasury will auction about $101 billion of securities next week, and Goldman Sachs Group Inc. estimates the government will sell a total of $3.25 trillion in debt this fiscal year to finance President Barack Obama’s economic stimulus measures.

‘Triple Whammy’

“Speculation has increased that the U.S. could potentially face a credit rating downgrade and in doing so, lose its AAA rating,” Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd., wrote in an e-mailed report today. Investors in U.S. assets may face a “triple whammy of falling U.S. equities, U.S. government debt and the dollar,” he said.

Crude oil for July delivery rose 41 cents to $61.46 a barrel on the New York Mercantile Exchange. Wholesale gasoline futures for June were up 0.5 percent at $1.8085 a gallon. Memorial Day on May 25 marks the start of the U.S. summer driving season and some 32 million Americans will travel more than 50 miles from home over the three-day holiday weekend, according to the AAA motoring organization.

Copper for delivery in three months rose 2.7 percent to $4,590 a metric ton on the London Metal Exchange after China, the world’s biggest consumer, said imports increased 7 percent last month. The metal is still 49 percent below the record $8,940 reached July 2. The U.S. economy will contract 2.8 percent this year, while the euro zone will shrink 4.1 percent, according to as many as 61 economists surveyed by Bloomberg.

Geithner Commitment

Treasuries rose, with the yield on the 10-year note falling one basis point to 3.35 percent, bring the decline this week to 22 basis points. Rosengren said in a speech in Worcester, Massachusetts, yesterday that “a rather slow recovery is likely” this year.

Treasury Secretary Timothy Geithner committed to cutting the budget deficit to about 3 percent of gross domestic product, from a projected 12.9 percent this year.

“It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television yesterday.

The difference in yield between two- and 10-year notes was 250 basis points, near the widest level since November.

Gross Concern

“The markets are beginning to anticipate the possibility of” a downgrade to the U.S.’s top rating, though “it’s certainly nothing that’s going to happen overnight,” Bill Gross, the co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., said in an interview on Bloomberg Television yesterday. The firm manages the world’s biggest bond fund, the $150 billion Pimco Total Return Fund.

Britain would be the fifth western European nation to have its credit grade lowered this year as the financial turmoil batters the global economy. S&P said yesterday the nation had a one in three chance of a ratings cut as debt approaches 100 percent of GDP. The pound weakened 0.5 percent against the euro and 0.4 percent versus the yen. It was little changed against the dollar.

Lenovo, China’s biggest maker of personal computers, slid 6.4 percent in Hong Kong. The maker of Thinkpad laptops, based near Raleigh, North Carolina, posted a record quarterly loss and said it faces a “very challenging” market

British Airways slid 2.1 percent after reporting its first full-year loss since 2002. The London-based carrier had a net loss of 375 million pounds ($594.5 million), compared with the 312 million-pound loss predicted by eight analysts in a Bloomberg survey.

Profits Drop

Profits at the 318 companies in Europe’s Stoxx 600 that have reported earnings since April 7 dropped 47 percent, according to data compiled by Bloomberg. That compares with a 35 percent decline in earnings at 464 companies in the S&P 500.

London-based Anglo American Plc advanced 2.3 percent. The fourth-largest diversified mining company was raised to “buy” from “neutral” at Goldman Sachs Group Inc. and added to the firm’s “conviction buy” list.

Sears Holdings, the largest U.S. department store chain, surged 19 percent in German trading. The Hoffman Estates, Illinois-based retailer had a profit excluding some items of 38 cents a share in the three months ended May 2. Six analysts predicted a loss of 87 cents, on average, according to a Bloomberg survey.

To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net
Last Updated: May 22, 2009 06:53 EDT

Or you could continue to raise the taxes, stifle corporations, thus stifling the economy like we have been.... that'll work too... :logik:

Seriously, you :yammer: :yammer: :yammer: just to hear yourself :yammer: :yammer: :yammer: . You're a gibberish machine.

:zzz:

You could also stifle small businesses and corps by having them pay for their employees healthcare, completely at the mercy of the HMOs.