Donnerstag, April 01, 2010

Limerick of the day, Slow Wealth, and Downgrade Day in 2015...

Americans came to depend a lot
On their debts, which they tend to extend a lot,
But good fortune favors
A nation of savers,
And not those who borrow and spend a lot.

From a lovely web page with a daily economics limerick,
Limericks Économiques.



There is a lot to be said for savings: without them, there are no investments. But saving is boring, tedious and takes time to build up capital.

Just as there is the slow food movement, perhaps what we need is a slow savings movement, a slow wealth movement. Fast money is increasingly toxic: slow money is what is needed to sustain economic growth.

Fat chance of that happening.

Why?

Because there isn't the time: looking at the US budget deficit, along with the criteria that the rating agencies have stated to be the cut-off point for AAA sovereign borrowers (normally downgrades come when 10% of revenues are used for servicing the debt, with the exception of the US, which is allowed 14%), Downgrade Day comes in 2015, when the US government will be paying 14.8% of its revenues in interest charges.

Only 0.8% above? Isn't that simply flirting with the threat of downgrade, won't the rating agencies have mercy and ignore that short lapse of good budgetsmanship?

We wish: in 2020, the ration exceeds 20%. The path of US government finances, unless changed, will result in a Downgrade Day sometime in 2015. Don't know the exact day - stay tuned - but unless the rating agencies change their actually rather prudent debt ratios, the credit rating of the United States is...toast.



And I do dearly wish that this was an April Fools' Day joke: it is not. Downgrade Day is financial Armageddon for US government finances. Without the AAA ratings from all sides, government finances will have to be completely redone.

Watch for massive pressure of the US government on the rating agencies. These need to stand strong and deny the US government the white-washing that it wants: if they fail to do so, then the whole concept of ratings collapses.

Ye gods of the copybook headings...

Kommentare:

Slow Money hat gesagt…

Did you take a look at the Slow Money movement in the USA. We are having a gathering June 9-11. Let me know of you are interested! lucas at slowmoneyalliance dot org we can probably waive your fee.

Dr. Goose hat gesagt…

Herr Opie,

Ihr Shout-Out gestern hat mich sehr gefreut, und auch Interesse an Ihre wertvolle Kommentare geweckt. Die werde ich künftig intensiv folgen.

Mit freundlichen Grüssen,

Dr. Goose