The U.S. debt crisis represents a unique, unparalleled, and unimaginable convergence of circumstances yet, despite the utter gravity of our plight, nothing is being done to change our course. Washington must either muster the courage — and the support of the people — to accept the pain and make the sacrifices of a lifetime … or face the downfall of America. Words: 938
Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below further reformatted and edited [..] excerpts from Martin Weiss’ (http://www.moneyandmarkets.com) original article* for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Weiss goes on to say:
The United States government and its agencies have, by far;
1. the largest pile-up of interest-bearing debts ($15.6 trillion),
2. the largest accumulation of unsecured obligations (over $60 trillion),
3. the largest yearly deficit ($1.6 trillion) and
4. the greatest indebtedness to the rest of the world ($4.8 trillion)… of any country in the world.
In proportion to the size of its economy, one important country, Japan, does have more debt than the U.S. Unlike Washington’s debts, however, nearly all of Japan’s are financed by its own citizens — loyal, long-term savers who are far less likely to pull out in a storm.
Despite the utter gravity of our plight, nothing is being done to change our course. To whit …
Consequence #1: Higher Interest Rates
Due to the avalanche of government borrowing to finance the deficit, there is no power on Earth that can avert sharply higher interest rates.
Consequence #2: Higher Bond Yields
All long-term bonds — whether issued by other government agencies, corporations, states, or municipalities — will also collapse, driving their yields through the roof because, when Uncle Sam has to pay more to borrow, they inevitably have to pay more as well.
Consequence #3: Higher Mortgage Rates
Rates on mortgages and car loans will surge. Why? For the simple reason that they’re also tied at the hip of long-term Treasury rates. If you want to take out a 30-year fixed mortgage (now close to 5 percent) on a median-priced home ($178,300), and you can afford a 10 percent down payment just …
a) a 1 percent rise in rates will drive your monthly payment from $861 to $962 [that's $1212 a year!]
b) a 2 percent increase will drive it to $1,068 [that's $2,484 a year!!) ...
c) and the kinds of rate increases possible in a bond-market collapse could drive it to levels only Midas could afford. Worse, if you go for variable-rate mortgages, balloon mortgages, or other now hard-to-get alternatives, the impact of surging interest rates will be even more traumatic.
Consequence #4: Stagnant Recovery
The fledgling recovery in housing and auto sales — the pride and joy of Washington's bailout brigades — will be toast.
Consequence #5: Lower Long-term Bond Yields
Institutions and individual investors holding piles of lower yielding long-term bonds will get killed which includes:
a) the U.S. households stuck with $801 billion in Treasuries, $979.5 billion in municipal bonds, plus a whopping $2.4 trillion in corporate bonds
b) banks and credit unions holding $199 billion in Treasuries, $228 billion in munis, $1.066 trillion in corporate bonds and, worst of all, $1.408 trillion in government agency (and GSE) bonds
c) insurance companies buried in Treasuries ($196 billion), munis ($444 billion), agency bonds ($469 billion) and a TON of corporate bonds ($2.180 trillion) and
d) private pension funds, state and local governments, and even their employees' retirement funds [which are] all loaded with similarly vulnerable bonds.
Not all of the [the above] holdings are of the long-term variety, but most are, and investors and institutions who own them, on behalf of millions of retirees, will suffer shocking declines in the market value of their portfolios. [In addition,] they could suffer a chain reaction of defaults, gutting their income stream and, worst of all, they now have some reason to fear the de facto default of the biggest debtor of all — the government of the United States of America. I doubt very much we will see THAT happen but two events are very possible, even likely, [namely]:
1. America will lose its triple-A rating
If the Wall Street rating agencies don’t have the moral fiber to announce downgrades, the marketplace will do it for them.
2. Our leaders will face an Armageddon unlike any since the Civil War.
Like California and Greece … like every household and any company … our government MUST cut back and accept the rest of the consequences:
#6: Declining home values
#7: Falling stock prices
#8: The end of the recovery
#9: And many, many more [dire consequences]!
Washington… will no doubt seek every [possible] alternative and try every other trick [to avoid either of the above scenarios] but, alas, no printing press can run faster than our foreign creditors can sell their U.S. bonds. No one will bail out America.
Ultimately, there is NO choice. Washington must either muster the courage — and the support of the people — to accept the pain and make the sacrifices of a lifetime … or face the downfall of America. Yes, we MUST bite the bullet!
http://www.munknee.com/2010/08/10709/
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