The Swamp Walker Delight

If you can understand how the modern swamp walker thinks, you are better positioned to see how credit rating agencies and stopgap bills are both moving America towards a similar end.

Last week Moody’s Investor Service lowered its U.S. credit outlook from ‘stable’ to ‘negative.’  At the same time, Moody’s kept the U.S. at AAA, its highest rating.  What’s the holdup?

Several months ago, Fitch downgraded its U.S. credit rating from AAA to AA+.  S&P Global Ratings downgraded U.S. credit all the way back in 2011.  Does Moody’s really believe U.S. credit is ultra-safe?

By all honest accounts, the U.S. government’s financial condition has changed dramatically for the worst over the last 50 years.  Somehow Moody’s rates its credit as if the nation’s debt profile is still sound and sober.

By lowering its credit outlook Moody’s is likely setting the stage for an actual downgrade. Yet at this point a credit downgrade would come much too late for anyone to really care about.  Certainly, it won’t compel Washington to get a handle on its spending problem.

The politics of U.S. government finances are the stuff of clowns.  For example, this week the House of Representatives passed a stopgap bill to keep the lights on at every federal building from sea to shining sea.  This was followed by a quick Senate approval, so President Joe Biden could scribble his name on it.

The stopgap bill, however, is a two-step plan.  The first step extends funding until January 19 for priorities like military, veterans’ affairs, transportation, housing, and energy.  The rest of the government – spending not covered by step one – will be funded until February 2.

So, in just two months’ time, there will be yet another budget hubbub – full of loud mouths who like to make a lot of noise.  But, what’s the point?

Ball and Chain

The possibility of a U.S. government shutdown is a mere charade.  We’ll believe it when Washington stiffs its creditors, social security checks bounce, and government workers are holding “will work for food” signs in front of Circle K.

Instead, after the Kabuki theatre of it all, a deal will be cut that supposedly reduces spending by $1 trillion over the next decade.  Politicians will pat themselves on the back.  They’ll say they made tough decisions to preserve democracy.  That the nation is fundamentally strong.  They’ll also give themselves another raise.

In reality, the agreement will reduce annual deficits from $2 trillion to $1.9 trillion over the next decade.  So, instead of racking up $20 trillion of new debt over the next 10 years, the U.S. government will rack up $19 trillion – hence, the supposed $1 trillion in spending reductions.

Remember, via rack and stack, this $19 trillion in racked up debt will be stacked on top of the already existing $33.7 trillion debt.  Does it really matter if in November 2033 the national debt is only $52.7 trillion instead of $53.7 trillion?

What’s more, at some point over the next decade there will be a crisis – real or fabricated – that requires the government to do whatever it takes.  This usually means doubling or tripling the deficit to bailout the government’s preferred businesses and interests.

We saw this happen during the financial meltdown of 2008.  Lehman Brothers, and Dick “the gorilla” Fuld, got diddlysquat.  While AIG and Goldman Sachs got choice bailouts.  General Motors got a bailout too.  Your uncle declared bankruptcy and lost his home.

Regardless of what happens this time around the debt pile will be significantly massive.  Moreover, this mega ball and chain of debt will restrict Americans natural rights – as first elaborated by John Locke – of life, liberty, and estate.

A Whole Lot Less

With each passing year the ball becomes heavier, and the chain becomes shorter.  Opportunities become limited.  Individuals of talent and ambition are rendered immobile.

Indeed, the natural rights of younger generations are being trampled upon with relentless vigor.  Your kids and grandkids will be stuck with the tab for spending that took place long before they were even born.  They’ll waste a substantial part of their time and talents paying a whole lot more for a whole lot less.

In fact, it’s already happening.  Many young adults, who graduated college and are gainfully employed, have discovered they can hardly afford a small, rundown apartment in a seedy part of town.  After paying federal and state income taxes, and local sales taxes and all the various fees and exactions, plus the inflation tax, they can hardly afford a chicken burger lunch at Chik-fil-A.

In this regard, Tuesday’s consumer price index report is inconsistent with reality.  According to the Bureau of Labor Statistics, consumer prices increased at an annual rate of 3.2 percent in October.

Food and shelter were both up 0.3 percent for the month.  Gasoline was down 5 percent for the month.  The net effect, per the CPI, is that consumer prices were unchanged from September.  Nonetheless, chicken burgers remain insanely expensive.

Wall Street took the CPI report to mean that Fed rate hikes are over.  That the Fed would even be cutting rates in early 2024.  The prospect of cheaper credit boosted the DOW, S&P 500, and NASDAQ, which closed out Tuesday up 489 points, 84 points, and 326 points, respectively.

The Swamp Walker Delight

In the short run, the possibility of a strong stock market rally to close out the year is both fun and exciting.  There’s nothing wrong with a little extra holiday cheer courtesy of Wall Street.  Why not take it while you can get it?

Just be prepared for an abrupt and concerted price reversal.

Overall, a year-end rally doesn’t change the structural nightmare of mega debt, massive deficits, and rising net interest on the debt that must be reckoned with.  Like most things that are unpleasant, this nightmare is coming together at the worst possible time.

The demographic pyramid has grown more and more top heavy.  The Ponzi scheme of government finance is doomed.  All the promises and entitlements will have to be broken.

However, the swamp walkers in Congress won’t go down without another vulgar display of power.  They’ll endeavor to keep the bog full and the murk plentiful, and their family and friends well fed.

By this, they’ll simply turn to the Federal Reserve to deliver printing press money once again.  And the price of chicken burger sandwiches and everything else will inflate relative to the dollar’s rapid debasement.

The real government shutdown will happen when government workers, including representatives and senators, refuse to show up for work.  This won’t happen because a funding bill fails to pass and paychecks bounce.  It will happen because workers are being paid in worthless dollars.

This is why the token downgrades by the big three credit rating agencies, the bogus government shutdowns, and the fake spending reductions don’t do anyone but the swamp walkers any good.

It’s also why the swamp walkers delight in the status quo and don’t do anything to change it.

[Editor’s note: Today, more than ever, unconventional investing ideas are needed.  Discover how to protect your wealth and financial privacy, using the Financial First Aid Kit.]

Sincerely,

MN Gordon
for Economic Prism

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