CENTRAL VIEW for Monday, August 8, 2011

From AAA to AA: Down the slippery slope

The recent bickering in Washington over raising the debt ceiling and cutting spending alerted many work-a-day Americans that the U.S. Government (USG) is living hand-to-mouth, having to borrow more and more money from the Red Chinese and others just to pay the USG’s daily bills.

But, as predicted two weeks ago, a major credit-rating agency, despite the passage of the debt-ceiling legislation, downgraded investments in the USG from their traditional AAA rating to AA. The downgrade signals to potential investors that investments backed by the “full faith and credit” of the USG now carry more risk than before.

In order to compensate for higher risk, potential investors will now demand higher interest rates. To make up for the higher cost of borrowing, the Obama White House will order the U.S. Treasury to print more money, leading to higher inflation – an insidious tax on the poor and those living on fixed incomes.

Just as soon as the debt ceiling was raised, the U.S. Treasury Department borrowed so much money that our national debt exceeds our Gross Domestic Product (GDP). In other words, the USG now owes more money than the United States is worth. That caused the stock market to plunge 699 points in one day. Fortunately, the market has recovered somewhat; however, many individual investors and many pension funds lost a lot of money.

As observed by The UK Telegraph’s Nile Gardner, here is Mr. Obama’s problem: “Since Obama took office in January 2009, the United States has embarked on the most ambitious failed experiment in Washington meddling in US history. Huge increases in government spending, massive federal bailouts, growing regulations on businesses, thinly veiled protectionism, and the launch of a vastly expensive and deeply unpopular health care reform plan, have all combined to instill fear and uncertainty in the markets. Free enterprise has taken a backseat to continental European-style interventionism, as an intensely ideological left wing administration has sought to dramatically increase the role of the state in shaping the US economy. The end result has been a dramatic fall in economic freedom, sluggish growth, poor consumer confidence, high unemployment, a collapsing housing market, and an overall decline in US prosperity, with more than 45 million Americans now reliant on food stamps – that’s over one seventh of the entire country.”

The recent failure of the Democrat-controlled U.S. Senate to reauthorize funding for the Federal Aviation Administration (FAA) is another case on point. The Republican-controlled House passed its version of FAA reauthorization on July 22, 2011, and sent it to the Democrat-controlled U.S. Senate which refused to act on the bill, forcing the FAA to furlough over 4,000 workers, and leaving the bare minimum of air traffic controllers on duty. Also, with no authorization to continue to collect the airline ticket tax, the USG lost $30 million-per-day that was supposed to go toward the Airport Improvement Program.

Senate Majority Leader, Harry Reid (D-Nevada), refused to consider the House version because the House eliminated a $3,720-per-airline-seat Essential Air Service (EAS) subsidy for the Ely, Nevada airport. (Background: When President Carter’s deregulation of the airline industry forced many small airline companies that served rural America out of business, Congress created the EAS program to have taxpayers subsidize airline service to some of the rural areas that benefitted from airline service prior to deregulation.)

Senator Reid’s inaction stopped the construction of airport facilities across America, meaning some of our colder, more northern, states lost an entire construction season. Under pressure from the U.S. Department of Transportation and the construction industry, Senator Reid finally caved in. FAA funding is temporarily restored. But only to September 16th of this year.

Meanwhile, want a quick fix to the debt crisis? Have every American man, woman, and child write a personal check to the National Bank of Communist China for $46,843.84.

Nationally syndicated columnist, William Hamilton, was educated at the University of Oklahoma, the George Washington University, the U.S Naval War College, the University of Nebraska, and Harvard University.

©2011. William Hamilton.

Dr. Hamilton can be contacted at:

Email: william@central-view.com