2010 February 03 Wednesday
Moody's Threatens US Government Bond Rating

Okay, I know the little boy cried wolf lots of times over the years and the wolf never came. But, hey, isn't there a later point in the story where the wolf finally shows up? The US government is yet another dubious borrower.

"Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in [President Obama's Feb. 1 budget] will at some point put pressure on the AAA-government bond rating," Moody's said in a report Tuesday.

The debt trajectory isn't sustainable.

"The debt trajectory is clearly continuously upward if further measures are not implemented," Mr. Hess said.

I do not want to live thru hyperinflation or a depression. But we seem on course for some kind of economic disaster.

For the next 10 years the US Congressional Budget Office expects 2014 to be the best year with a $475 billion deficit. CBO expects the deficit to grow worse after 2020.

For the shorter-term, the CBO sees deficits of $980 billion in FY'11, $650 billion in FY'12, $539 billion in FY'13, and $475 billion in FY'14 and $480 billion in FY'15.

Looking further forward, the CBO sees deficits of $521 billion in FY'16, $525 billion in FY'17, $542 billion in FY'18, $649 billion in FY'19, and $687 billion in FY'20.

You might think that surely the US government won't let total government debt reach 100+% of the GDP. But I would have thought 10 years ago that the current debt and deficit levels would be politically impossible. Yet here we are with Obama and Congress trying to create massive new spending on health care on top of the Medicare drug benefit that George W. Bush and Congress put into place on an already financially rickety medical program.

If your retirement planning for the 2020s or 2030s includes government funding of a large part of your retirement and almost all your health care costs then think again. Expect higher taxes even in your retirement and means testing of more benefits. Also expect higher age requirements for retirement. You will work longer and pay more taxes.

Share |      By Randall Parker at 2010 February 03 10:49 PM  Economics Sovereign Crises


Comments
A.Prole said at February 4, 2010 12:57 AM:

But aren't all those untold millions of Hispanic workers going to contribute to social security?
Aren't they going to save the economy and bail everything out? - You know unlike aging and sclerotic Europe, just like the WSJ and The Economist keep hammering on everyday.

Black Death said at February 4, 2010 6:07 AM:

"You will work longer and pay more taxes."

That's the bottom line, isn't ir? Social Security will be more heavily taxed and means-tested - sort of a welfare program for the elderly. Medicare will become Medicaid for seniors - payments to doctors will be cut so that most of them won't see Medicare patients, sort of like Medicaid is now. Defined-benefit pension plans may not be entirely able to fulfill their obligations. And Congress would sure like to grab the 401-k's. It's going to be a rough ride.

Hornady said at February 4, 2010 8:05 PM:

Consolidate resources with your family ASAP. People had better buy precious metals too. Brass and lead included...

Randall Parker said at February 4, 2010 10:38 PM:

Black Death,

Yes, that's the bottom line.

What I want to know: How to invest in order to reduce the impact on oneself of the likely future directions of US government policy and poor US economic performance.

Hornady,

Brass and lead? I think it makes more sense to invest in things that will serve useful purposes. You'd be better off with solar panels or insulation or a ground sink heat pump than a pile of lead.

A.Prole,

The WSJ editors are a pathetic lot.

eating Crow said at February 5, 2010 8:48 AM:

unk science kills
By ELIZABETH M. WHELAN
Last Updated: 9:51 AM, February 4, 2010
Posted: 12:47 AM, February 4, 2010
The media gave big headlines to this week's stories on a prestigious British medical publication's retraction of an article that had claimed to show a causal link between standard childhood vaccinations (measles, mumps and rubella) and autism.

Yet the coverage of the Lancet affair didn't truly convey the outrageousness of the original publication or the gravity of its consequences -- consequences long festering, since the paper was published not last week but 12 years ago.

Many of us in the scientific community recognized the "study" as junk when it appeared in 1998. Even before we learned of then-unknown ethical failings by its lead author, we knew the study was based on a tiny population of only 12 children. More, it relied on a novel methodology that assumed some bizarre, previously unheard of, association between children's autism and their manifestation of intestinal problems.

Nonetheless, the media back then seized on this story from a prestigious medical source -- and the scare picked up steam when TV appearances by actress Jenny McCarthy and a Rolling Stone article by Robert Kennedy Jr. blared word of the putative dangers of vaccines.

When criticism of the paper intensified in the days after publication, Lancet editor-in-chief Dr. Richard Horton defended his decision to publish what he acknowledged as an inferior study by claiming it would generate debate on the autism/vaccine issue. Even when 10 of the original 13 authors withdrew their names from the article, Horton still refused to withdraw the study.

Nor did he take such action when multiple studies subsequently appeared showing no link between vaccines and autism. Nor even in 2004 -- when it was revealed that the lead author, Dr. Andrew Wakefield, had been paid, in part, by lawyers for parents seeking to sue vaccine makers, claiming adverse health consequences.

All the publicity led many parents to forgo these vital infant immunizations: Vaccination rates in Britain, especially, plummeted. And since then, hundreds of unvaccinated children have been hospitalized in Britain with the measles. Some died of the illness.

Here in America, more than 1,000 children have died from H1N1 flu over the last year -- numbers that would surely be smaller had not so many parents been frightened away from getting flu shots by the general Wakefield-induced paranoia over vaccines.

In other words, a medical jour nal triggered a chain of events that led to preventable disease -- and some child deaths.

Some will argue the Lancet piece was an aberration: Most peer-reviewed journals publish only carefully reviewed, well-conducted studies. But there is a disturbing trend in recent years: publication of small, uncontrolled, isolated findings -- which the media immediately present as fact, under alarming headlines.

And health and environmental activists have founded their own cliquish "peer review" journals: Small groups of ideologically fueled scientists publish the manuscripts compatible with their activist mission.

In the specific case of vaccines, a cottage industry of conspiracy theorists, "investigative journalists" and (understandably) desperate parents of sick children in search of explanations also stands ready to pounce on any apparent indictment of vaccines -- and spread the word.

All of which makes it all the more important for serious journals, as the Lancet claims to be, to avoid junk science -- not promote it.

Nor did the journal's editors, after 12 years, finally independently come to their senses and vote to retract. Horton finally pulled the trigger on the retraction only after a British medical panel (the General Medical Council) concluded that Wakefield had been dishonest, violated basic research ethics rules and showed a "callous disregard" for the suffering of children following his spurious publication.

Even with the retraction, the widespread rumors of a vaccine-autism link will prevail: The broader anti-vaccine movement is alive and well, albeit without a shred of evidence to support their case. As the chief of Infectious Disease at Philadelphia Children's Hospital, Dr. Paul Offit, reflected sadly, "This retraction by Lancet came far too late. It's very easy to scare people; it's very hard to unscare them."

Horton has made no effort whatsoever to apologize or take editorial responsibility for this egregious error. He should step forward and say, "I regret the needless suffering and death for which I am partly responsible."

This incident leads to one very unsettling but unavoidable conclusion: Even a study in a top-notch, peer-reviewed medical journal may still be scientific garbage. Imagine how many other false (if less controversial) reports glide by under the radar -- undetected but still destructive to good science and public health.

Dr. Elizabeth M. Whelan is president of the American Council on Science and Health (AC SH.org).

Hornady said at February 5, 2010 7:35 PM:

Brass and lead? I think it makes more sense to invest in things that will serve useful purposes. You'd be better off with solar panels or insulation or a ground sink heat pump than a pile of lead.

---------------------------------
Brass and lead are meant to go together...Lead in a pile won't help out too much. jvv

Luthor said at February 5, 2010 10:31 PM:

Brass + lead = bullets.

Or at least, that's how I read the comment.

Randall Parker said at February 6, 2010 11:38 AM:

Hornady,

Okay, I get it.

My take on survivalism: If you think extreme measures might become necessary then guns aren't at the top of the list. The biggest problem is interdependence with the rest of society. You need a much more self sufficient place to live before you should start worrying about how to defend it.

Save money and make more money. Invest it in ways that protect your buying power from inflation. That's the road to survival. We aren't near a complete breakdown of civilization. There'll be plenty of safe areas even as things get worse. It is more important to live in the right place than to have guns. Best to be somewhere safe than to have to shoot at people.

Financial Advisor said at February 7, 2010 10:28 AM:

Since this post relates somewhat to my profession, I'll give my two cents. First, save more. Everyone should be saving at least 10% of his income for retirement and 5% for emergencies. However, given the likely increase in taxes and decrease in benefits, I'd ball park that you should increase your retirement savings to at least 15%.

Next, what to do with the money. Invest around half (up to 60% or 70% if you want) of your money overseas via international stock and bond index funds such as Vanguard. Make sure that the mutual fund holds the stocks and/or bonds in the local currency, i.e. unhedged, rather than in dollars, i.e. hedged. This will protect you from a dollar decline and/or a slow U.S. econony ala Japan for the past twenty years.

You also could buy commodities, which do tend to hedge the dollar fairly well and would be good in hyperinflation, though how much better than foreign currencies is debatable. I'd go with PIMCO's Commodity Real Return (PCRDX). What I like about that mutual fund is that they use TIPs as the collatoral for their commodity futures contracts, so, in essence, you own both commodities and TIPs, both of which as reasonable inflation hedges. You could put 5-20% of your portfolio in commodities.

If you own a home, either pay off the mortgage or if that's not possible, make sure that you have a 30-year fixed mortgage. Rates are very low right now, and the 30-fixed provide great inflation protection.

If you can, save some of your money in Roth IRAs. The government can always change the rules down the road, but it probably won't be worth the effort for them since Roths are used that much by people. Regardless, you can't predict what the government will do, so you might as well just use the rules that we have now.

Now I know that some people worry about a complete breakdown where the government takes your 401k and you need a gun to fend off roving bands of NAMs. Not a very likely scenario, but if it does happen, well, it doesn't really matter what you do with your money now. But if you're really worried about that, I'd suggest keeping 5-10% of your money in gold held overseas, i.e. protected from the US gov't. There are a couple of companies that do that. Don't remember the names, but they'd be easy to find. One is in Australia. You could alway hold the gold in the form of coins and store them in the bank, but then the gov't might ban them as they did in the 1930s. Better to keep overseas.

Good luck.


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