URGENT: We Need YOUR Vote On the Debt Limit Today
- Jul 29, 2011
- admin
- Investing
(Today I was going to update you on the progress we’ve made this week on the creation of your retirement product. But given the shenanigans on Capitol Hill I woke up this morning and wrote this letter instead.)
Today the country needs your help. The folks on Capitol Hill need to hear your voice. Loud and clear…
There are over 3,000 people who read the Tycoon Report each day who work in our government. For the sake of privacy I can’t reveal who they are or where they work – but there are among us and they do read the Tycoon Report…
And many of them have tremendous influence on our future.
It’s time we let them know what we think. It’s time we let them know that we want them to resolve this crisis now. It’s time for you to make sure your voices are heard.
That’s why I encourage you to comment on our website. Let them know exactly how you feel. Let them know how frustrated you are that it has taken this long to iron out the debt deal.
We must do this now. Why?
Because the debt talks on Capitol Hill are fast becoming one of the most bizarre and surreal experiences I’ve ever witnessed.
At first I thought the politicos in Washington were just playing chicken with their negotiating positions, as usual. But this has turned into the worst game of chicken you can play – the kind where the players don’t truly realize the costs.
What are the costs?
There are two story lines going on here…
- The first is the raising of the debt ceiling, which, in my view, is by far the least important of the storylines.
- The second is a credible deal to lower government spending to avoid a lowering of our AAA credit rating.
It is the second issue that is giving me such concern.
If the credit ratings agencies lower our credit rating, both the known and the unintended consequences will be huge…
What is known for a fact is that –
- Interest Rates on Government Debt Will Rise: All future bonds the government issues will have to pay buyers higher interest rates. This alone will cost the government tens of billions of dollars more each year.
- Your Interest Rates Will Rise: Everyone who borrows money will have to pay more. Credit cards, mortgage rates, car loans, you name it and it will become more expensive. This would be worse than any tax you could imagine.
- Asset Prices Will Drop Immediately: Bonds will decline in value. Stocks will decline in value. Commodities will decline in value. You name it, and chances are that it will decline in value.
- Unemployment Will Rise: Higher interest rates mean lower corporate profits and less spending on new projects. That mean unemployment will rise.
As scary as that may seem it’s nothing compared to the unintended consequences of a lowering of our credit rating –
- An Interest Rate Spike: The markets would almost be stupid not to teach us a lesson. Thus, I would expect investors around the world to sell American assets, leading to a spike in interest rates far above what would normally accompany a debt downgrade.
- Further Decline of the Dollar: We’ve already lost a ton of credibility here, but most people believe that we’ll ultimately do the right thing (even after exploring all other options). This will embolden the EU and ASIA to strengthen their currencies to provide a credible alternative to the dollar. Won’t happen overnight but it will happen.
- An Economic Calamity: Most investors still believe we’ll get something done. But the truth is that if we don’t, there will be a worldwide shock and change in perception about American. Once perception changes, we’ve officially lost our place as the leader of the world.
Those of you who know me know I am not a fear monger. Especially when it comes to the U.S.A., I am naturally an optimistic person.
But we are watching history right now. You have a front row seat. This is as serious as it gets…
All Washington has to do is take a lead from Cuomo in New York or Christie in New Jersey. One Democrat, one Republican and one solution – freeze spending for the next decade without increasing taxes.
In fact, if Washington froze spending at current levels for the next decade that would literally count as a $9 Trillion Dollar spending cut!
The lack of bravery shown by Washington dishonors the memory of the Greatest Generation that stormed the beaches of Normandy.
If a deal isn’t reached this weekend, this may actually be the last Tycoon Report article you read in the era of the Greatest Generation.
If that thought angers you just as much as it angers me, speak up. You’d be shocked at how loud your voice will be heard today.