AAA Ratings or Not, US Bonds Are Toast

 

For years it was only within the sphere of conspiracy theory and contrarian news. But a downgrade of US debt is becoming more likely as budgetary and monetary problems come to a head.

The debt ceiling debate in Congress is really nothing more than a distraction. The government will not shut down simply because just about everyone knows Congress will eventually raise the ceiling to absorb even more debt. A week or two delay is no big deal. Very few of our elected officials are prepared to take the necessary steps and the subsequent immediate pain that would follow an outright refusal to increase our debt borrowing capabilities.

But what the current budget and spending debate highlights is something worse than just the possibility of a temporary government shutdown. Tim Geithner’s letter to Congress regarding the debt ceiling in January of 2011 made it clear that We’re Literally On the Brink of Catastrophic Collapse. While a temporary government shutdown may delay some services and entitlement payments, paychecks for soldiers and processing of IRS taxes, it is nothing compared to what would happen if the US government were to lose its AAA bond status.

RT and economist Max Fraad Wolff explain:

It would create global shock waves, in part because most models and understandings of the global investing landscape, including the bond landscape, take as their central anchor the US 10 year Treasury bond as a risk-free asset.

Hat tip Daily Bail

Some argue that because the United States has the privilege of printing the US dollar, no such downgrade will ever take place. We are, after all, the reserve currency of the world, and a downgrade is simply not a possibility, according to the experts.

Within the context of this argument it is important to remember that the ratings agencies responsible for giving US bonds a AAA credit rating are the very same agencies that rated mortgage backed securities, which just so happened to be loaded with toxic paper, the same risk-free status. Nonetheless, those so-called investments were nothing more than another Wall Street Ponzi scheme designed to plunder large financial institutions and individual investors alike.

Thus, a AAA bond rating doesn’t really mean what it used.

Even while those mortgaged backed securities and other alphabet investment vehicles held triple A ratings, the entire financial system was imploding around them when investors realized that they didn’t actually hold risk-free assets, but rather, worthless paper. It didn’t take a ratings agency’s downgrade to send global markets into a free-fall.

The US dollar may very well be worth about as much as those risk-free assets of 2007. What will it matter if purportedly “independent” ratings agencies like Moody’s never downgrade US debt from AAA status if large investors like China, Russia, Japan pull the plug? Embellished or outright fraudulent ratings will only work until they don’t. The collapse of 2008 should have made that clear.

Whether US Treasury bonds are downgraded officially, or through back channels when our creditors decide to stop buying any new debt, makes absolutely no difference. The end result will be the same.

While economist Max Fraad Wolff provides us with a general overview of how world markets will react, describing the subsequent effects as a “shock wave”, understanding what that shock wave could entail may be critical to financial well being, but more importantly, your physical survival.

There are several fictional portrayals available for your review that may, in part, explain what such an event might look like. In summary, it would be the end of the world as we have come to know it, and the government shutdown in terms of essential services and entitlement payments would be permanent, not temporary.

Here is what the first 12 hours of such a collapse in US Debt purchasing might look like:

While we could debate the time line and speed of such a crisis, the overall effects on the economy and social order are, in our view, fairly accurate.

For inquiring minds, we also recommend the following resources:

The Day the Dollar Died (by John Galt) [FREE]

Indivisible (by Troy Grice) [FREE online, or available as an e-book or paperback]

Patriots (by James Rawles) [Paperback]

No Way of Avoiding Financial Armageddon (by Mac Slavo) [Article]