Deficit committee FAILS! What will happen next …
|Never before in modern history has the U.S. government faced a greater fiscal disaster!
And never before has it failed so miserably to confront it!
This past weekend, instead of putting new proposals on the table, Congress’ Super Committee — our nation’s last hope for a solution — has shot down the last of its trial balloons.
Instead of burning the midnight oil to come up with an 11th hour deal, they’ve gone home.
Instead of doing something — ANYTHING — to help narrow our nation’s massive deficit gap, they have effectively GIVEN UP!
And yet the big players on Wall Street don’t seem to care. From their willingness to buy U.S. stocks and bonds in recent weeks, most seem to think all of this is “OK.”
So first, let me tell you what my message is to them — and to anyone who has failed to prepare for the consequences. Then, I’ll get back to you and give you some specific instructions on what to do.
My Message to Wall Street …
For many months, you’ve seen other countries suffer massive economic, political, and social CHAOS due to very similar debt problems.
You’ve seen global investors dumping their government bonds.
You’ve seen their governments take Draconian steps to stop the selling, but to no avail.
You’ve seen riots on their streets.
And just in the last few weeks, you’ve seen the contagion spread rapidly from Greece to Italy, Spain, and now, even France.
What makes you think the United States is immune to the same contagion?
Do you assume the U.S. federal deficit is somehow less of a problem? If so, you’re terribly misinformed.
The American government’s yearly red ink is close to 10.9 percent of GDP and will be even worse in a double-dip recession.
In contrast, Greece, the first victim of the contagion, has a federal deficit that’s currently just 6.7 percent of GDP. And if the recent deal to relieve some of its debt burden takes effect, the reduction in interest will cut Greece’s deficit down to 5.4 percent of GDP, less than HALF the size of America’s.
Or perhaps you’re thinking that the total, accumulated government debt burden in the U.S. is somehow smaller. Also not true …
In contrast, Spain, the most recent victim of the contagion, has a government debt burden representing only 60.2 percent of GDP — about half as bad as America’s.
Or maybe you subscribe to the belief that the U.S. will never catch the contagion simply because America is not a PIIGS country. Hogwash!
That’s exactly what Italian officials said about Italy. “We’re the eighth biggest economy in the world,” they raved. “We’re larger and more industrialized than Canada and Australia,” they ranted. “There’s no way we’ll wind up like Greece,” they concluded.
But now look what’s happened: Italy’s bond market crash is so severe, its borrowing costs have surged to 7 percent, the same tipping point that drove Greece to the brink of default.
That’s also very similar to what French officials were claiming up until just a few days ago. “France has the fifth largest economy in the world,” they raved. “France has done a great job managing its debts,” they ranted. “We’re not PIIGS! We’ll never catch the contagion!”
Oh yeah? Then look at this:
Still think the United States is special and immune? Hah!
Just take a look at modern history …
In years past, global investors have rushed to DUMP U.S. bonds, driving borrowing costs to astronomical, unsustainable levels.
And in one particular case (February 1980) — a time when our deficits weren’t nearly as bad as they are today — they virtually shut down the bond market, making it almost impossible for the U.S. Treasury to borrow money — at ANY cost.
Or maybe you’re among those who believe the automatic, across-the-board cuts in U.S. federal spending — the back-up plan in case Congress fails to act — will do the trick. Not even close!
First, because the automatic cuts are too small — less than $1 trillion, which is a small drop compared to the vast sea of red ink.
Second, because they’re not really cuts like Greece’s or Italy’s. They are merely slowdowns in projected increases.
And most important, because Congress’ failure to act sends the message to the world that our leaders are polarized, our government is paralyzed, and our finances are out of control.
 Internal Sponsorship |
Do you truly think the three largest credit ratings agencies are going to simply ignore Congress’ failure? I think that’s a pipedream!
The rating agencies have flatly stated that their next likely step is to downgrade the U.S. government. That’s the specific, unambiguous definition of their “negative outlook” for the United States.
But we’re not the only ones pointing this out.
Even Merrill Lynch agrees that a downgrade is imminent: “The credit rating agencies,” writes Merrill, “have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the Super Committee crashes.”
What? You say you don’t give a damn how bad the U.S. deficit gets … or how far the U.S. debt rating is downgraded.
Just remember what happened this summer — when just ONE major rating agency downgraded the U.S. by one small notch!
The Dow plunged 635 points in a single day and 2,000 points in two weeks. America’s economic activity sank. Global credit markets went haywire.
That’s my message to Wall Street.
Now, Back to You …
First, if you still own medium-term notes or long-term bonds of ANY kind, get rid of them now. Nearly all of Europe’s “highest-quality” bonds are already sinking. So are America’s lower-quality bonds! It’s only a matter of time — possibly a very SHORT time — before U.S. Treasury bonds also begin to fall.
Reluctant to give up decent yields? Beware! All of your interest accumulated over several years — and more — can be wiped out by the losses in principal that come with a bond market crash.
Second, dump your most vulnerable stocks, especially those that do not pay dividends and merit the lowest ratings. (For the latest evaluations on your stocks, go to www.weisswatchdog.com, sign in, add them to your Watchlist, and check the rating.)
Third, put most of the proceeds into cash. You can find our list of the safest banks at www.weissratings.com. Or you can also consider money market funds that invest exclusively in shortest-term U.S. Treasury bills. (Unlike bonds or notes, these are NOT vulnerable to contagion.)
Fourth, to help hedge your cash against a decline in paper currencies, be sure to hold core positions in gold — either gold bullion coins or gold ETFs (like GLD).
And fifth, go for the potentially astronomical profit opportunities that this kind of crisis generated this past summer — and is bound to generate again now. (Click here for our blockbuster video with our 6-step plan designed especially for these tough times.)
Good luck and God bless!
Martin
http://www.moneyandmarkets.com/deficit-committee-fails-what-will-happen-next-48114?FIELD9=2
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