	Generational Dynamics
	Forecasting America's Destiny ... and the World's

\| HOME \| WEB LOG \| COUNTRY WIKI \| COMMENT \| FORUM \| DOWNLOADS \| ABOUT \|

Generational Dynamics Web Log for 7-Aug-2011
7-Aug-11 News -- Bitter recriminations fly over U.S. debt downgrade

Web Log - August, 2011

7-Aug-11 News -- Bitter recriminations fly over U.S. debt downgrade

China issues a bitter, acerbic statement

Bitter recriminations fly over U.S. debt downgrade

The late Friday Standard & Poor's report (PDF) downgrading U.S. debt from AAA to AA+, with negative outlook, has raised anger and anxiety around the world, and led to a feeling that the deterioration of the global financial system is speeding up.

US Debt vs GDP (BBC)

US Debt vs GDP (BBC)

We're in uncharted territory. No one knows what's going to happen next week, with opinions spanning the range from "non-event" to "catastrophe."

The most bitter, acerbic statement came from China's state run news agency Xinhua:

"The days when the debt-ridden Uncle Sam could leisurely squander unlimited overseas borrowing appeared to be numbered as its triple A-credit rating was slashed by Standard & Poor's (S&P) for the first time on Friday.
Though the U.S. Treasury promptly challenged the unprecedented downgrade, many outside the United States believe the credit rating cut is an overdue bill that America has to pay for its own debt addition and the short-sighted political wrangling in Washington.
Dagong Global, a fledgling Chinese rating agency, degraded the U.S. treasury bonds late last year, yet its move was met then with a sense of arrogance and cynicism from some Western commentators. Now S&P has proved what its Chinese counterpart has done is nothing but telling the global investors the ugly truth.
China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets.
To cure its addiction to debts, the United States has to reestablish the common sense principle that one should live within its means.
S&P has already indicated that more credit downgrades may still follow. Thus, if no substantial cuts were made to the U.S. gigantic military expenditure and bloated social welfare costs, the downgrade would prove to be only a prelude to more devastating credit rating cuts, which will further roil the global financial markets all along the way.
Moreover, the spluttering world economic recovery would be very likely to be undermined and fresh rounds of financial turmoil could come back to haunt us all."

Republicans and Democrats have been blaming each other for the downgrade. U.S. House Speaker Republican John Boehner blamed the downgrade on decades of reckless spending, accusing leading Democrats of refusing to make "tough choices." Democratic Senate Leader Harry Reid said the move "reaffirms the need for a balanced approach to deficit reduction," including an end to tax breaks for the wealthiest Americans – something Republicans refused to accept. VOA

From the point of view of Generational Dynamics, politicians could have neither caused nor prevented the growing financial crisis. This is a generational crisis, the first since the 1930s. The credit bubble of the mid-2000s decade created huge amounts of liquidity. With the collapse of that bubble, there is less money in the world every day, because of deleveraging. As liquidity becomes more scarce, meaning that the supply of liquidity goes down, the "price" of liquidity, as measured in interest rates (bond yields) goes up, particularly in Europe, by the law of supply and demand. This is causing a deflationary spiral that cannot be stopped by any politicians.

The bitter recriminations will continue and worsen until the crisis becomes so great that all sides will be forced to unite for the survival of the nation. This is the generational "regeneracy" of civic unity that will occur for the first time since the end of World War II.

(Comments: For reader comments, questions and discussion, see the 7-Aug-11 News -- Bitter recriminations fly over U.S. debt downgrade thread of the Generational Dynamics forum. Comments may be posted anonymously.) (7-Aug-2011) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Web Log Pages

Current Web Log

Generational Dynamics Web Log for 7-Aug-2011 7-Aug-11 News -- Bitter recriminations fly over U.S. debt downgrade

Bitter recriminations fly over U.S. debt downgrade

Web Log Pages

Generational Dynamics Web Log for 7-Aug-2011
7-Aug-11 News -- Bitter recriminations fly over U.S. debt downgrade