Standard & Poor's Lowers USA Long Term Rating to AA+ For First Time in 70 Years

On August 5, 2011, the Standard & Poor's Rating lowered the United States of America's long-term sovereign credit rating from AAA to AA+ for the first time in 70 years.  Regarding its short-term rating, the S&P affirmed the A-1+ rating.

Why is this significant news?

The USA is officially entering a new financial era that reflects upon the current behavior and cultural trend that has been evolvling perhaps since the 1960s.  Given the August 2, 2011 passage of the Budget Control Act Amendment of 2011, the US fiscal policy has assuaged immediate concerns about any immediate threat of payment default as the US government continues to encounter political governance that is less stable, less practical and less cooperative between political parties to resolve matters of most importance.  In other words, the United States is heavily debt-laden, and the question of the currency and its valuation to repay the debt is of grave concern.

Standard & Poor's report presents sound financial rationale and perspective on the current outlook.  It is well worth anyone's time or effort to read these unbiased facts.

Concerning military personnel, it is going to be a rocky road between now and 2012 as the government debt burden will go higher and as the baby boom generation marks its draw on social security, medicare and such.  Cuts and reductions are on the horizon for civilian discretionary spending, defense and Medicare. 

Donald Marron presents more interesting financial perspective.  Moody's and Fitch have affirmed the USA's crediting rating at AAA while China's Datong credit rating agency lowered it earlier this week to negative.  Donald is right to expect more US downgrades regarding debt.  There are five countries in the past 30 years who have regained an S&P AAA rating so there is hope for the US to regain this rating but it will come at political crossroad that many are very VERY concerned about.

There will be more news reporting (as well as hype).  Political parties will blame the other.  The American consumer is awakening to a reality that has been evolving for quite sometime.  Question is Will our elected officials in Congress and the Administration be able to work something out?  I am pessimistic at this juncture and am discouraged for my husband and all the men and women who work in the military as well as those hardworking Americans who do work, who do do the right thing and who do NOT sit on their buts and let someone literally feed them with every materialistic item out there.  We may even see taxes rise on both incomes and investments in ways we've not seen for awhile. 

For many who serve in the military, it is likely that many cutbacks will occur as the defense department will downsize the military (now I do not know this for a fact....this is only my opinion).  Perhaps it is raising the military to be more sophisticated and effective by doing more with less.  If you read the Forbes article on where our next corporate America managers are coming from, it is the military.  I believe that serving in the military will rise in prestige as Americans begin to appreciate the high level of quality, education and training these men and women have received.  Life for the military spouse will become more isolating.  Reliance on social networking and certain other networks will increase with importance for the military families. 

Regarding finances and military pay, it is challenging for many to make it without dual income, and for many military spouses, that's challenging to have a career as the military relocates you and your family every 2-4 years. 

In a previous blog, I posted information for disabled veterans and those who have served our country about the Concurrent Retirement and Disability Pay (CRDP). Qualified disabled military retirees will get paid both their full military retirement pay and their VA disability compensation as stated earlier this year.  I believe that there is elevated risk as to how our disabled veterans will be compensated.  There is not much research or information surfacing about this all important financial issue (something that frustrates me for our fallen comrades).  I find it strange that the US government would not provided proper financial support; however, those who were most skeptical about the War in Iraq do not view favorably our disabled veterans and admonish this liability that could potentially increase in costs for many years to come.  I hope that there is a rise in foundations, non-profit groups or grants for disabled veterans that will lend financial assistance and offset an increasing negative sentiment from those who served.  (Currently I am working on another blog article about CRDP).

The best gift that any and all of us can do is to pay off your debt.

Perhaps by starting with the little details that don't seem to really matter we can make a difference and alert Congress and the Administration to the importance of paying off our debt.  Eventually, the S&P credit rating for this wonderful country will rise back to AAA status (or as Warren Buffet eloquently stated....we've been at a AAAA+ rating only to see the slight pullback to AAA).

Financial Fallacy

This morning's news echoes what many are questioning....why is the United States developing a financial fallacy with regard to its debt and just common sense management of govenment business?  I believe that the S&P 500 will lower our AAA credit rating. 
For many folks especially the military, this is discouraging news.  I have a difficult time turning on the tv or internet and read these bleak reminders about all the arguing in Washington DC.   Since I can recall back to the 1980s, it made sense to payoff the debt before it went on a credit spiral.  Today, we are experiencing a credit spiral. 

This wonderful capitalistic country is on the verge of something none of our American ancestors would want for us.  These seven points below outline general financial perspective as we encounter an economy that is teetering on the edge of a potential financial disaster.

1. Inflation - we will experience higher inflation than in previous years.  The purchasing power of the dollar is dismal in this type of economic environment.  For those in retirement or about to enter retirement, it means a lower quality of living since the cost of living standard (just to maintain present day cost of living) will be a challenge.  For military families, it means hardship because many are challenged financially.  Relocation with the military is expensive, more so than what people realize.  While there are items provided for, it's still a challenge for many to meet budgets.
2. Jobs - what jobs are being created today?  Manufacturing ventured overseas starting in the 1980s, and today there are fewer manufacturing jobs left in this country.  (Many work part-time  jobs with little to no benefits.)  For those 55+, the ability to get a job is on the decline as youth versus experience is the preference.  For those in the military, there are some cutbacks occurring that will force military families into civilian world and that may mean unemployment.  One couple has been struggling with employment for three years now, and it's a direct result of his military reserve status. 
3. Discouragement - if you shop local pawn shops and thrift stores, you will see a huge increase in traffic buying clothes, shoes and other basic necessities.  Pawn shops are packed full of merchandise such as guns, guitars, jewelry, tools, electronics and more simply because people need money to get food and provide shelter and transportation.  This increased level of activity spells out to me the increasing discouragement that we as a nation are enduring.
4. Money - many are working longer hours with increased job responsibilities for the same amount of pay (or less).  Benefits such as health insurance are changing and costs are rising.  More are having to pay out more in medical expenses than before.  It makes me rethink picking up the phone and calling the doctor's office before incurring that bill.  The bad fact is that I never know what kind of bill I am looking at with medical expenses even when it is for the same routine checkup.
5. Children - parents spend a lot on their children.  With an increase in cost of living, we may see a resurgence of family nights where folks play games or we may see more children left by themselves because of daycare costs as well as working longer hours.  Children consignment sales are very popular as you are able to beat certain thrift stores for good clothing.  Sports activities and other extracurricular activities may see less enrollment because let's face it, budgets are tight and people are tired of these overcompetitive parents yelling at the games.
6. Pets - the animal control centers are seeing an increase in loose pets as a direct result of the economy.  People move and leave the pet wandering to survive on their own.  Pet stores continue to see sales rise; however, more animals are being put to sleep.
7. Nursing home care and hospice - as the bulk of our US population enters the Golden years, it is raising concern for the quality of care.  The elderly are experiencing certain financial challenges. Nursing homes are claiming that elderly person's assets before allowing Medicare to kick-in and are even holding family members financially accountable going back seven years.  In addition to financial challenges, it is common for families of loved ones in nursing homes to encounter abuse of loved ones.  For example, a nurse aid contacted all family members and asked for money for their loved one.  She did not realize that the family she was conning was one full of attorneys, military officers and educated people who called her bluff.  While her jail time was next to nothing, she will try this again. 

While the outlook appears bleak and discourages those of us who are hardworking, exercise our right to vote as a U.S. Citizen, and are doing what's right (i.e. not into drugs or other bad behavior), it is important to understand this season of life that the United States faces.  Who knows, we may be revisiting the time of Ninevah where a higher power is exerting influence to get our attention.

2012 Military Pay Outlook & US Government Shutdown

According to Military.com 2012 Pay News - The president's 2012 budget request includes a proposal for a 1.6% military pay raise for 2012. While slightly larger than last year's military pay increase, the 2012 proposed military pay increase would be the second smallest in 50 years.

Concerning all the political and current news being reported, I am leery of what's to come next.  Our current economic climate is seeing some positive signs such as manufacturing has picked up according to the Institute for Supply Management.  Leading economic indicators look good as a recovery appears stronger and stronger since the 2009 dip.  Housing has yet to see any improvement as personal income is down.  While personal consumption is up according to the US Dept of Commerce, I suspect that it is the usual Amerian tendency to spend with a credit card or other debt.  For those military members interested in managing their financial affairs better,  I would determine a household budget based on current pay and then computer another budget based on the 2012 military pay proposed above.  While military personnel and their families should NOT endure the stress of  getting paid, it is important to get out your calculator, pen & paper, and/or computer to determine your spending plan.  Military wives especially need to lower their spending habits because it is amazing the unlimited choices relative to your limited financial resources.

In the article Why Put Military Pay At Risk?, it lends perspective on general sentiment.  That this political talk is WRONG. 

Accordig to Rick Maze of the Air Force Times, Rep. Hunter is trying to get Congress to pass HR 1551 where military pay would be guaranteed.   To date, there are 39 co-sponsors of the bill.  The challenge is the debt ceiling and what the US Government intends to do regarding this $14.3 trillion debt issue.  There is a financial risk involved with guaranteeing such a large amount of money for any business situation let alone government.  However, the military is a different matter when it comes to government and certain financial obligations.  There are other budget cuts that should occur before reducing military pay (the above small increase in military pay 2012 is a political statement that is an insult to hardworking and underpaid military personnel and their families) such as fourth generation welfare recipients who have a refridgerator, cable tv, a wii or playstation, and these electronic food stamp cards where purchases include beer, wedding cakes, steaks and other.   I personally do not have cable tv nor a wii or playstation.

As of this blog publication, there is no guarantee that military pay will occur should the government shutdown occur.  I am sorry to type this because it is just wrong.  Historically, this has been a challenge for past armies and military troops throughout the ages (the Romans and others).  It is critical to pay your military because if you look at history, it is a telling tale.

S&P Negative Outlook on US Dollar

According to the Financial Times, the S&P credit agency downgraded the dollar from stable to a negative outlook.  Our national debt is of huge concern.  Wall Street saw the color red on just about all screens today as concern grows about the U.S. not addressing its budget deficit. This is reflected in the down rating.  Even FoxNews reports a negative rating should jolt politicians in the United States to resolve this budget deficit. 

If you go to US National Debt Clock's web site page, you will see some shocking numbers.

Raising the debt ceiling may put a patch on things but the bottom line is change has NOT happened.  The debt is destroying opportunities for our future generations.  Our forefathers would be rolling over in their graves if they knew of the present financial situation for this country.  Ed Morrissey writes a good wake-up call on how Americans need to reduce debt to income.  Keep in mind that U.S. households versus the U.S. Government are not as much alike as you would think.  If you read the Consumerism Commentary on The Budget Deficit and Debt, you will understand a subtle difference. 

This is just the beginning of a long road ahead for America to get itself out of a budget deficit, turn the economy around and pay down its national debt.  The bells and sirens have gone off.  Wall Street showed its reaction today.  Time will tell what will come. 

WAR of the CURRENCIES

If Donald Trump's wake-up call about a 25% tariff on imported goods from China doesn't strike you enthusiastically, then consider this:  we are at war and it is a war of the currencies. 

China devalues its currency by up to 40% so that US manufacturers can't compete with goods and services imported from China.  A trade tariff may be a wake-up call that's come too late (it could have been made in the 1990s).  President Hu has criticized the US for it's plan to buy $600 billion of debt to stimulate the economy.  (How come the U.S. media hasn't cared to comment about this....Instead, all that is on the news is who got killed, what charity organization got what, what the weather did in this part of the country or a picture of a cute dog up for adoption).  China has a vested interest in our monetary system since it holds billions of dollars in government debt (or U.S. Treasuries).  I find this debt issue alarming.  There is justification for the dollar being a financial product of the past and the yuan to emerge as the next dominant currency of exchange.  (Jim Rogers sells many of his books translated into the Chinese language if you look on his official web site page). 

The Eurodollar back in the 90s was intended to compete directly with the U.S. dollar.  Europe imitated a similar financia approach to the United States with one major problem....they were not a unified nation under similar laws nor similar fiscal systems.  Hence, today's challenges presents a major setback for the Euro.

Critics and experts can all say what they want to say.

Speaking in China at a gathering of finance ministers from the Group of 20 economic powers Thursday, U.S. Treasury Secretary Tim Geithner said that "weaknesses and inconsistencies" in global exchange rate policies are among the biggest challenges facing the international monetary system according to CnnMoney.com.

What many fail to communicate to the American people is the importance of a unified economic force to remain competitive in international markets.  As the average American goes to work and brings home a paycheck, it's discouraging because of the longer hours, less pay and/or benefits and less time with family.  Americans are in debt and use debt to maintain a standard of living that is not sustainable over the long haul.  The Unions cannot make demands today that were once influential.  We as a nation are just not as competitive as we used to be. 

Our National Debt is of grave concern to those who care about the future for our children and grandchildren.  What is to become of this debt?  How can we maintain interest payments?  Why won't politicians halt the bleeding and do what the American people elected them to office to do?  While Donald Trump's run for the Presidential Office may seem a side-kick to the GOP or funny to some, I say "You Go Donald Trump, and please help me save this country for the sake of our children."