Is there a financial collapse of the U.S. and other Western powers underway? I don't know. I do know that collectively the U.S. and other countries have been running up quite a debt. Before someone blames it on Obama, in the U.S. most of the debt came during the Reagan, Bush I and Bush II years. The Bush II years were especially disastrous with running up a debt due to idiotic tax cuts for the rich and wealthy (under the failed Trickle Down Economics theory pushed by Reagan and which Bush I called voodoo economics) alongside running two off-the-books wars simultaneously alongside an unfunded prescription drug program. Obama inherited a mess created mutually by the Republicans and Democrats and everyone else in Washington who's been screwing up the system for years.
The result was this fake drama over "raising the debt ceiling" and with fake ideological stances over whether to have debt or not, etc.
The main thing to take from it is this fact: Over the weekend, even though the debt ceiling was raised, the S&P downgraded the U.S. credit rating to AA from AAA and Moody's threatened to also do so if the U.S. Government did not make steeper cuts in spending.
In other words, the banks and debt system are calling the shots and telling the U.S. Government what to do. And that's because the Federal Government has been malfeasant for years, resulting in huge deficits explicitly because of stupid Republican policies.
A July 13 Assoc Press report (Moody's Warns It May Downgrade US Credit Rating) goes over warning sounds Moody's was making a month ago. Today a Bloomberg News notes that Moody's and Fitch kept U.S. credit rating the same but "also said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens." The same report also quotes two S&P analysts saying that the extremely difficult negotiations leading up to the credit limit deal last week were the primary cause S&P lowered the credit rating. That extremely divided "discussion" was not consistent with an AAA rating. (U.S. Loses AAA Credit Rating as S&P Slams Debt Levels, Political Process)
"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating," S&P said. The Bloomberg report also said "S&P put the U.S. government on notice on April 18 that it risked losing the AAA rating it had since 1941 unless lawmakers agreed on a plan by 2013 to reduce budget deficits and the national debt. It indicated last month that anything less than $4 trillion in cuts would jeopardize the rating."
In other words, both S&P and Moody's are dictating to the Federal Government what the Federal Government policies must be. The state of affairs came about because the Federal Government has been ridiculous for years over an extreme level of relying on debt to finance the government. Note: I'm not saying it's because the Federal Government is over-spending, but that the government is relying on debt.
The problem with debt is you're wasting money on the interest payments, and as we see here it means the debt holder has power over you to control what decisions you can make.
It's not just a U.S. crisis, it's a global economic financial crisis. In Europe several countries are having severe problems, Spain and Italy being the current worry spots. A NY Times report mentions the European Central Bank was demanding Spain and Italy to "restructure their economies and cut spending".
(S.&P. Downgrade Is Seen as Adding Urgency to Debt-Cutting Panel) The debt ceiling crisis was resolved by creation of a Congressional "supercommittee" whose job is to "to mute ideological disagreements and recommend a package of deficit-reduction measures". That committee is now seen as having been given extra oomph by an S&P report released last week. The committee is described as having three roles, including "to appease the markets" and restore the AAA credit rating. "Appease the markets" can only mean one thing, right? To do what the market says, in other words the bond holders are calling the shots.
For example: If Congress wants to satisfy the rating agencies — Moody’s and Fitch have so far kept their AAA ratings of government debt — it will need to lock in substantial deficit-reduction measures, without using the kind of budgetary gimmicks that sometimes appear to produce savings under accounting rules prescribed by Congress, several lawmakers said.
(London Sees Twin Perils Converging to Fuel Riot) Over the weekend there was rioting in England. It was a small "anti-police demonstration" over the shooting of an Afro-Caribbean man in an area (Tottenham) that's full of disadvantaged Afro-Caribbean's. It might be nothing other than a riot over police brutality, except for this "Frustration in this impoverished neighborhood, as in many others in Britain, has mounted as the government’s austerity budget has forced deep cuts in social services." The point being that England elected a Conservative recently, who enacted a series of deep budget cuts to straighten out the country's finances, and now the people are rioting.
Other random quotes and links
"Policymakers around the world are trying to come up with a strategy to shore up market worries over the global economy and the levels of debt in the U.S. and Europe.""S&P said the agencies and banks all have debt that is exposed to economic volatility and a further downgrade of long-term U.S. debt. Their creditworthiness hinges on the U.S. government's ability to pay its own creditors."
Markets Drop As Investors React To Downgrade
S&P Downgrades Fannie Mae, Freddie Mac Ratings
Global Finance Leaders Pledge Bold Action to Calm Markets
