Hot Air » Blog Archive » US speeding towards financial crash

Hot Air » Blog Archive » US speeding towards financial crash: "Two related stories signaled investors today to push the dollar lower in overseas trading last night. First, former GAO chief David Walker notes a bond warning from Moody’s that US Treasury bonds may lose their top rating — and that could cost us dearly:"

As the boss recalls this morning, George Bush tried in 2005 to warn about the looming crisis in entitlements. What kind of response did that get? Democrats like Harry Reid accused Bush of fearmongering and panic, and assured Americans that “the so-called Social Security crisis exists in only one place — the minds of Republicans. In reality, the program is on solid ground for decades to come.”

Obviously not. Last month, I noted several more of those Democratic demurrals in 2005, along with the news that Social Security surpluses have already disappeared. As I wrote earlier, Treasury’s website shows that we lost money in February for the first time ever — and that will only get worse as the economy slows, unemployment rises, and more people start drawing Social Security.

Why did this hit the dollar today? If the US loses its top rating as a bond issuer — which really only means as a borrower — we will have to pay higher interest rates on our bonds in order to attract investors. This has already started to happen even with the top rating, but a markdown will force the issue. That will make our debt service significantly higher than we anticipated at either the OMB or the CBO, and these deficit projections will start extending a lot farther downward in the next couple of years:

Not only will the deficits increase, the cost of deficits will increase, and eventually the debt service will become the biggest part of the federal budget — unless Washington massively increases taxes to close the gap.

And that is why Tea Parties have erupted across America. The free-spending policies of today will lead to massive taxation or collapse in the near future, and anyone with a calculator and an iota of sense can see it.

See original article for quotes and charts.