Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19
Central Banks’ Gold Buying and Repatriation Spree - 28th Nov 19
Another Precious Metals’ Reversal Coming Right Up! - 28th Nov 19
Stock Market 100% Measured Moves May Signal A Top - 28th Nov 19
Don’t Look for Investing Advice in the Media - 28th Nov 19
Why You Should Buy Trailer Park Stocks - 28th Nov 19
Will YouGov General Election Forecast 2019 be as Wrong as their REAL Forecast was for 2017? - 28th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

Math Vindicates S&P U.S. Debt Downgrade

Interest-Rates / US Debt Jan 03, 2012 - 12:04 PM GMT

By: Michael_Pento

Interest-Rates Best Financial Markets Analysis ArticleStandard and Poor’s has been greatly vilified for their call to lower the U.S. credit rating to AA+ from AAA.  The evidence, naysayers point to, for their justification of excoriating S&P is the performance of Treasuries since the downgrade occurred.  Indeed, U.S. debt yields have fallen and the dollar has increased in the five months after being stripped of AAA.


In fact, foreigners increased their holdings of Treasuries in Q3 by $17.2 billion and now own nearly 50% of our marketable debt.  And 60% of their currency reserves are in U.S. dollars.  So there are no signs of panic yet.

The prevailing wisdom of today now yields to the conclusion that getting your debt downgraded automatically renders a boost to your currency and bond prices.  Therefore, why worry?  Their comfort is ridiculously based upon the notion that the U.S. has a printing press and can create unlimited amounts of inflation.  Therefore, interest rates will never rise and debt service won’t ever be a problem.

I think that’s also what the government of Hungary believed after WWII.  They had a printing press also and it was used to pay debts accumulated during the war.  But their daily rate of inflation hit a global record of over 200%.  I wonder if the mortgage rates in Hungary were low back in 1946?

I, of course, strongly applaud S&P for attempting to shed a light on our pernicious debt problem.  The U.S. government seems completely inept at taking even the smallest baby step towards lowering our annual shortfall in revenue over spending—let alone paying off the debt.

Recent examples of the paralysis in Washington include; the debt ceiling debate, Simpson Bowles Committee and the payroll tax holiday extension.  Time after time D.C. manages to decide to increase the debt without cutting spending.

But what vindicates Standard and Poor’s the most is simply the math behind the government’s debt obligation. Our debt now exceeds the total GDP, and the annual deficits pile are piling on an additional $1.3 trillion each year to that accumulated debt.  Our publicly traded debt has increased 100% in the last 5 years!!!  What is even worse is that our debt as a percentage of revenue is exploding.  Back in 1971, the national debt was 218% of revenue.  In the year 2000, the debt as a percentage of revenue had grown to 280%. Today, it has skyrocketed to 700% of revenue…and if you think that is worth panicking over you are absolutely correct.  Yet those ethnocentric politicians and Wall Street Banksters still believe the credit rating agency had no basis to downgrade the U.S.

The bad news is the worst is yet to come. Just wait until interest rates start to rise.  The average yield on U.S. debt is near 1% today.  It was 6.5% in the year 2000.  But given our record level of debt and Fed-led money creation, yields on Treasuries could and should go much higher than at any other point in U.S. history.  Just imagine the economic instability that will arise when yields start to soar on corporate, consumer and government debt.

So much has been written and spoken about the pristine state of corporate balance sheets. Wall Street gurus love to parrot the fact that corporations hold a record level of cash. But it is also true that those same corporations now hold a record $7.6 trillion in debt. The facts are that households, corporations and government now hold a record level of debt. And the total of that debt as a percentage of GDP is, historically speaking, extremely high and close to its record set just a few years ago. These artificial and temporary low interest rates won’t last. Inflation and massive debt supply will force rates higher. Then, the economy will falter as the percentage of debt to GDP soars. Just imagine what would happen to the real estate market if mortgage rates went back to 8%, if corporations had to pay double digits to refinance their debt and if the Federal government had to roll over its $10.5 trillion in debt at 7% instead of paying 2%.

That’s the reason why I believe if there is any criticism to be placed on Standard and Poor’s it should be that their rating of U.S. debt is still too high; and that the downgrade came way too late. 

Michael Pento

President
Pento Portfolio Strategies
www.pentoport.com
mpento@pentoport.com
(O) 732-203-1333
(M) 732- 213-1295

Mr. Michael Pento is the President of Pento Portfolio Strategies and serves as Senior Market Analyst for Baltimore-based research firm Agora Financial.
Pento Portfolio Strategies provides strategic advice and research for institutional clients. Agora Financial publishes award-winning newsletters, critically acclaimed feature documentaries and international best-selling books.

Mr. Pento is a well-established specialist in the Austrian School of economics and a regular guest on CNBC, Bloomberg, FOX Business News and other national media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.
               
Prior to starting Pento Portfolio Strategies and joining Agora Financial, Mr. Pento served as a senior economist and vice president of the managed products division of another financial firm. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
       
Additionally, Mr. Pento has worked for an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career Mr. Pento spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Mr. Pento graduated from Rowan University in 1991.

© 2010 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules