The downgrade: A political matter, not economic

One advice many of us got as we started a family was that we should never argue or vent our differences in public or in front of the children. Unless you are J-Lo or Marc Anthony, then your affairs can bring in a lot of money if published!

Since 1962, the debt ceiling in the US has been raised 74 times. President Reagan raised it 18 times, President Clinton 4 times and President Bush 7 times. Did you see a “great debate” then? Not that I recall.

There is only one other country in the industrialized world that has a debt ceiling, and that is Denmark. But it has been established so high that it is virtually impossible it will ever be reached. Its 2 billion Danish Kroner or 115% of the country’s 2010 GDP.

Think about it. Every time any government submits a budget proposal, isn’t it like asking for a raise in the debt ceiling anyhow? After all most governments have expenses that exceed income. The recent approval of the new US debt ceiling represents about 100% of the nation’s 2011 GDP. In Japan, debt is 228% of its GDP, and I don’t see credit agencies making a fuss about Japan’s credit rating. Let us not forget that these same agencies are the ones that in 2006 gave a AAA rating to bonds backed by subprime mortgages that later defaulted and started this economic mess.

Some “analysts” are now talking about other currencies as possible substitutes for the US Dollar. The Euro? Right! With all that are going on, and with real, true and meaningful downgrades of debt in some of the countries members of the Euro zone. Others have talked about the Chinese Yuan; do they know that the Yuan is a controlled currency that cannot be “exported” from China as stated by their Central Bank? Moreover, who has financed the Chinese factories or who buys most of what is produced in China? The US!  I challenge any one to travel oversees with Yuan’s (if they have them) or Euros and see which currency is widely accepted. It’s a no brainer, it will always be the US Dollar.

The question is not whether the US can pay its bills, but rather will our politicians be able to work for “the good of the people” and never forget that we are a “nation of many who stand as one”. That is why our credit rating was downgraded. Not because there is any doubt the US would not honor our debt, but because there is doubt our politicians would be able to work as a team, “E Pluribus Unum” (From the many, one).

My Grandfather used to tell me that a measure of the maturity of an individual lies in his/her capacity to pay the bills. And the US is a mature country; it will always pay its bills. No doubt we will overcome this mess, but it will take some time and effort by all of us.