by Tulio Rodriguez
Debt Ceiling increase in the United States Congress must approve a
specific bill that defines the level of debt that can be
obtained. Treasuries and inorganic money printing
are regulated by this bill.
in recent years the debt ceiling has been increased in
multiple opportunities. Market conditions have allowed
for these increases to be done without consequences.
Traditionally, united States Treasuries are the safe
harbor of capitals when in difficulty or doubt.
Congress and The White House have recently
performed a regrettable show that—unless instigated
by “covert factors”—has attempted against the
most sacred and revered asset of the united States
which is the trust and confidence everyone has in
our system. There is a perception of mistrust as
AUGUST 2011
a consequence of the limited ability shown in the
discussions and in the execution of an agreement that
falls short as far as the spending reductions required.
UniteD states DowngraDe:
The result after the discussion and the agreement
executed in Washington has been no other than
the loss of the AAA rating of the American debt.
Standard & Poor’s has rated the united States as AA.
ConseqUenCes:
There will be hikes on the interest rates on the
American debt very soon. in order to be able
to issue and place new uS treasuries in the
international markets, we will have to pay higher
rates. A single point increase on the rate would
erase all the reductions signed in the recent debt
ceiling deal executed in Washington.
We will see an overall increase of financial costs,
which will generate more deficits and then we
could require more debt, entering into a debt spiral
that ultimately would have serious inflationary
consequences.
Within the united States budgets have significant
deficits and cities and states are experiencing serious
difficulties to cover current expenses. This situation
will get worse.
international stock markets could also be impacted.
last week markets across the world collapsed,
initially due to problems in Portugal and greece and
more recently due to the projections of Spain and
italy. it is easy to foresee the potential impact of a
negative forecast for the united States.
who’s to blame:
This crisis started on the 70’s when France pulled out
of the bretton Wood agreement and claimed its gold.
Simultaneously Nixon needed to finance the Vietnam
War and since then we started to print money on
demand. debt began to grow and our papers were
always accepted in the international markets.
To ReuniTe The ameRiCan dReam Should
be youR maJoR aChievemenT. you aRe
ouR PReSidenT and we aRe waiTing FoR
youR leadeRShiP Signal, noT To imPoSe
youR belieFS, buT To uniTe ameRiCanS.
Congress seems to have recently paid more
attention to their electoral interests instead of the
most important national goals.
The white house has not taken definitive actions to
reduce spending.
The President looks more focused in his ideological
objectives, playing the politician’s role, while the
financial integrity of the country suffers.
it is easy to conclude that if we have a deficit, we
need a loan to make up the difference, or more
income should be generated.
ConClUsion:
The country leaders have no other option but
to reduce expenses and increase taxes without
discrimination pointing at a specific group, but to
everybody. obviously those in the higher brackets
will have to pay more. A “No Tax” policy is as
ideological as the president’s position.
what to Do?
The world evolves at the margin of ideologies and
with all due respect to the President and his position,
i will use my rights to speak directly to the President
and to the Members of Congress with my comments
and observations:
We still have an excellent opportunity ahead and
we must take advantage of it.
1. less nice speeches and more practical
coordinated actions.
the party is over
2. Change the course of the fiscal strategy.
3. The president said while in campaign that
he would go through the budget item by
item. Please review again as many times as
necessary, to cut much more than 1.2 trillion
within the next 10 years. Propose this plan
within the next 30 days since you have not
much more time than that.
4. Review and eliminate Medicare, we need to
start with a new fresh plan before is too late.
instead of scaring old people with threats that
they might not receive their check. Surprise
everybody with a new plan that works.
5. Taxes may have to increase, but outside of your
ideological base (only for some). No, everyone
will suffer, each one at its own scale. Please do
not forget that if you need to elect between taxes
and employment, the choice is employment.
6. incentives to go back to the basics and to our
roots “Made in uSA”. Any tax increase should
be oriented to incentives to new plans that
attract investors.
7. end all the wars today; you do not have the
time to do it progressively since you do not
have the money to pay for the bullets.
8. Tea Party members have the obligation to
cooperate with the government and support
all initiatives that allow the country to
recapture the AAA rating.
9. The president should be the leader that
can reunite the Congress fractions and
the American citizens. if at the end of your
presidency there is more polarization and
division, that will be your legacy. To reunite
The American dream should be your major
achievement. you are our president and we
are waiting for your leadership signal, not to
impose your beliefs, but to unite Americans.
i wondeR iF TheRe aRe Some CoveRT
gRouPS PRovoKing TheSe FinanCial
CRiSeS To devaluaTe The dollaR,
in oRdeR FoR Them To be able To
RePuRChaSe The uniTed STaTeS debT aT
a FRaCTion oF iTS PReSenT value.
Follow me on TwiTTeR.
Tulio J. RodRíguez
economist, Columnist, Speaker
director and Principal Partner | KoRes Corporation
www.KoResCorp.com | tulio@KoResCorp.com
954.888.9946
® illustrations All Rights Reserved. Natalia Rodriguez.
