Moody’s Sees U.S. Rating Cut to Aa On Default - Bloomberg

But the treat of a rating downgrade is just a sideshow. In fact, over the past several decades, Moody's and S&P have worked tirelessly to reduce the value of their ratings since the true arbitrageur of value is the marketplace itself and the price of this risk is already priced into the securities....

A default stemming from “the debt limit and the political configuration would indicate that, well, this might happen again,” according to Moody’s Steve Hess. “That risk is perhaps not compatible with Aaa,” Hess said at Bloomberg headquarters in New York on June 21.

S&P put the U.S. government on notice in April that it risks losing its top AAA rating unless policy makers agree on and implement a plan by 2013 to reduce budget deficits and the national debt.

But critical to this rating is that its not just avoiding a technical default but also to implement a plan by 2013 to reduce budget deficits and the national debt. Fat chance that this will happen, I see so little future for the leviathan in Washington that is in process of consuming itself in wildly irresponsible spending spree that will eventually bankrupt the central government.

Even if the tough work is somehow remarkable done in Washington (it will not), concern that should revolve around that though that we may already be too far down the slippery slope. As Lawrence Lindsey writes (here), there are 3 issues that will probably bust the budget.

First: a normalization of interest rates would upend any budgetary deal if and when one should occur. At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020.

Secon:But the president's budget of February 2011 projects economic growth of 4% in 2012, 4.5% in 2013, and 4.2% in 2014. That budget also estimates that the 10-year budget cost of missing the growth estimate by just one point for one year is $750 billion. So, if we just grow at trend those three years, we will miss the president's forecast by a cumulative 5.2 percentage points and—using the numbers provided in his budget—incur additional debt of $4 trillion.

Thir: it is increasingly clear that the long-run cost estimates of ObamaCare were well short of the mark because of the incentive that employers will have under that plan to end private coverage and put employees on the public system. Health and Human Services Secretary Kathleen Sebelius has already issued 1,400 waivers from the act's regulations for employers as large as McDonald's to stop them from dumping their employees' coverage.

But a recent McKinsey survey, for example, found that 30% of employers with plans will likely take advantage of the system, with half of the more knowledgeable ones planning to do so. If this survey proves correct, the extra bill for taxpayers would be roughly $74 billion in 2014 rising to $85 billion in 2019, thanks to the subsidies provided to individuals and families purchasing coverage in the government's insurance exchanges.

Decades of irresponsibility where met by the Obamessiah with a maelstrom of irresponsible spending that did not have the impact that was promised. But the beauty of this irresponsibility and failure of government to effect the economy is that finally, maybe just finally, we can bury the monster of Roosevelt's New Deal and people come to realize that government is toothless in its ability to create value. Governments cannot create value, they can only rearrange the economic incentives and change the mix of economic output through changing incentives or to divert resources through borrowing or taxing from one economic group to another. It is difficult to prove that these central government actions do or ever had the promised or intended impacts and common sense tells us that we maybe actually doing long-term harm to the productive economy.

The bottom line is that inevitably, governments fail. The one in Washington is going through its final phase, originally this experiment in creating a nation based on individual liberty that was transformed to a socialist central planned economy will either transform back to its original form of being a federal amalgamation of free states or become a state where the people become serfs to the government. I do not think that Americans will accept becoming servants of the states and this will create massive social and economic dislocations. We have a choice, we can fight back both within the system and outside. We can resist government and citizen should be engaging in resistance now.

Moody’s Sees U.S. Rating Cut to Aa On Default - Bloomberg