epic fail obama rides the Greek saddle: Cavalry to the rescue?

After crusading for an $800 billion “stimulus” bill in 2009 and ramming through a trillion-dollar health care overhaul in 2010, the Obama administration wants to spend yet more of your money — in Greece. Entitlement-mania in that nation has cost more drachmas than it could raise in the next 50 years, and the U.S. Spender-in-Chief wants to lend a hand — yours. Here’s how: Of the $145 billion Greek bailout passed early this month, $40 billion will come from the International Monetary Fund. And guess where the IMF receives a big chunk of its money? You, again. Economist Stephen Moore writes, “Last year, the Obama administration muscled through a new authorization of $100 billion in funding for the IMF.” So first, the Obama administration pushed to fund the IMF; then, it pushed to bail out Greece using IMF funding. Welcome to Obamanomics.

Fed up with the fiscal insanity, 45 House Republicans have signed a letter urging Treasury Secretary Tim Geithner to prevent American tax dollars from supporting the bailout. Tellingly, no Democrats signed the letter.

The spendthrifts in Washington may not “get it,” but our friends across the Pond apparently do. Explaining Britain’s refusal to help fund the bailout, British Chancellor of the Exchequer Alistair Darling stated, “When it comes to supporting the euro, that is for the eurogroup countries.” What a thought.

Then we have…

Like the Sword of Damocles hanging over our collective heads, the national debt stands ready to cleave the central government’s fiscal credit ratings. It’s no longer a question of “if” the government’s credit rating will be reduced to the same junk bond level as Greece’s, but merely a question of “when.” While there is no bright line to notify the government how much debt is too much, what is certain is that investors will soon command higher yields for holding risky U.S. debt instruments. When that happens, the federal government will be forced to pay much, much more to continue borrowing more money than it takes in.

Moody’s Investors Service sovereign ratings analysis is shining much needed sunlight to disinfect our government’s spending problem. Their analysis suggests that the federal government’s credit score will be severely downgraded somewhere between 2013 and 2018. The key indicator for Moody’s is the point at which the interest paid by the government for existing debt hits 18 to 20 percent of federal revenue, the government will lose its AAA rating. Under the rosiest of scenarios predicted by the Congressional Budget Office (CBO) for Barack Obama’s budget, interest will top 18 percent of revenue by 2018 and 20 percent by 2020. Under more adverse scenarios than the narrow factors CBO considered, including higher interest rates, Moody’s projects interest may hit 22.4 percent by as soon as 2013.

Rather than waiting for re-evaluation by Moody’s, investors may instead choose to punish the government and trigger an increase in rates in advance of any ratings changes. As long as Democrats remain in charge of the government, we can predict their response will be no different from what precedes: Raise taxes instead of cut spending. That and regulating with newly introduced legislation independent credit rating agencies like Moody’s so that they can’t downgrade the U.S.’s rating.

SOURCE

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One Response to “epic fail obama rides the Greek saddle: Cavalry to the rescue?”

  1. PanAm Says:

    Very informative and a good read…

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