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By now we all know that the United States government debt was downgraded by S&P to AA from AAA for the first time ever late friday night. US debt is supposed to be the most prestigious and creditworthy instrument in the world. it sets the tone for risk premium across the world as everything is set to the risk free rate. While this shouldn’t be a shocker to anyone other then the 95% of Americans who live in la-la land, the move is more symbolic to me rather then some armageddon scenario that our government leaders and childish treasury secretary make it out to be.  It means that United States is on notice to get their act together and show some fiscal responsibility. Sadly, they can’t and they won’t. What the debt debacle taught us is that our leaders are incapable of making hard choices and sacrifices and thus the path to ruin is not only inevitable but simply inescapable. However, the possibility of defaulting on our debt in the most common sense is off the table. and here is why…

As long as Ben Bernanke is Fed Chairman we will print our way to oblivion. This is the equivalent of creating money out of thin air and growing money supply in a way that is simply the most aggressive invisible tax on its people you can inflict. If you own government debt, you will be paid back with BAD money. This means the dollars you receive in the future will be worth far less in value then the dollars you are lending today.  In real terms, you will earn a negative return as treasuries are not inflation protected.

For the united states, this may be called a debt crisis but more accurately speaking its really a currency crisis. the world is done with our irresponsibility and borrow and spend behavior. the effect will be felt through the value of the USD not the debt as a country that owns a printing press is a country that controls its path to financial ruin.

Questions??????? email me.

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