The Sky Is Not Falling ...

YET.



But it is getting offally cloudy.



Yesterday, Standard and Poor, for the very first time in history, downgraded the US Government from Triple AAA status to Double AA+ - Now watch the fireworks; Obama is going to wear this one.



Am I surprised? Of course not - as you know, I have been saying for sometime now the the US Gov't is broke - as in flat broke. Of every dollar spent - 40% is borrowed. Try doing that in your own home for an extended period of time - say more than 3 months.



So why isn't the Sky Falling?



Because there are Two Economies at play here - one the Public One, as in bankrupt governments and the other, the Private One - as in the IBMs of this world. The first cannot take in enough money to meet their needs without borrowing and the second cannot spend their income fast enough; it just continues to build and build.



The recent bi-partisan agreement to reduce spending added to the Credit downgrade should at last cause Americans (read Democrats) to face up to the fact that they can no longer spend themselves into the promised land. Deep cuts are needed and they are needed now.

This is why I have promoted fiscal constraint for Government - not to see people hurt as in public service layoffs, reductions in entitlements etc but to see those matters preserved in a fiscally prudent fashion. Now we are going to see much stronger measures taken to get Government Spending under control which could have been avoided if action had been taken sooner. By the same token, if Governments continue to ignore the situation - the steps that will ultimately have to be taken will be even more severe.



In regard to the Private Sector - things are going quite well - record income and profits are being reported from a host of businesses. Where the economy remains weak is with respect to jobs - that is to say the lack of them. Business though will not hire until the "other economy" - Government - gets its collective act together.



Indeed, Business is benefiting from a devalued dollar and in the case of Europe, a devalued Euro. They are better able to compete in this ever-growing Global Economy.


The problem for them though, is that they are competing with Government for money and as Government continues its wasteful spending that money becomes more and more expensive (read scarce) for Business and Government alike ( ie interest rates are going to rise and the S&P downgrade will play a factor in this).



But there is an IF.



If Government(s) acts quickly to dramatically reduce its out of control spending and raise taxes where possible (e.g. a value added tax in the case of America), hopefully a rise in interest rates will be kept to a minimum. Businesses in turn will be better positioned to start bringing back employees.

A little word "if" but much hangs on it.

Conversely if Government response is weak -the other economy will soon falter resulting in more layoffs and another Great Recession or even worse Depression.

As I see it...

'K.D. Galagher'

They're Shocked...

That Nycole Turmel has recent ties to the Bloc and Quebec Provincial Separatists.

Imagine!

As I predicted in my recent Blog on dear Nycole, this was apt to get out sooner than later - indeed what surprises me is why the pundits are surprised - it was always patently evident where Turmel's true loyalties lay.

Now to Turmel herself - she has been on the talk circuit trying desperately to mitigate the damage. Her main line of defence is that "yes "she held membership in the Bloc and in a Quebec-based Separatist Organization but that was to endear herself to friends.

In fact, it was just a matter of weeks before she announced her candidacy for the NDP in the recent Election that she turned her Bloc Membership in and only days ago, cancelled her membership in the other separatist organization.

Talk about a Conversion on the Way to Damascus.

For the Record - I do not Buy it for one moment.

Turmel also alleges that she voted "No" in both of the Quebec Referendums on Separation. Lucky for her, those votes were held by Secret Ballot.

Some have suggested that Layton was unaware of Turmel's Separatists Leanings when nominating her for his replacement.

Impossible.

So why did he do it?

Layton knows that his recent surge in popularity is entirely Quebec based. He knows too that the bulk of his new Caucus has ties to Separation. So he needed an Interim Leader that could relate to this important contingent; enter Nycole.

What I pointed out in my earlier Blog is that his nominee will turn off their long time base outside of Quebec - the one that has stood with the NDP for decades and it will offend Canadians generally.

It was a dumb move on Jack Layton's part and his Party should never have endorsed it.

The fact that they did means to me that his Party is Dead on Arrival.

Should Nycole step down? Yes.

Will she - likely not.

In fact, from the outset, Jack Layton was probably the only guy that could straddle the divide between Quebec and the Rest of Canada when it came to the NDP.

Without Jack - it will be far more difficult to accomplish and with Turmel continuing in place - it will be impossible.

As I see it...

'K.D. Galagher'

Not With A Bang But A Whimper.

My Apologies to TS Eliot.

The US passed their Bill to raise the Debt Ceiling today - just under the midnight wire.

As we all knew they would.

But the All Party Agreement really amounts to little over the status quo - no tax hikes and no substantive spending cuts.

So what exactly was achieved?

A few things in fact.

First, it delayed - at least for the moment - the collapse in confidence of the American System - which would have reverberated negatively around the world.

Second, it has refocused the debate from reckless spending - aka Bush and Obama, to an agreement - even grudgingly on the part of the Dems - that serious spending cuts will have to be taken in due course.

Third, with this agreement, the Tea Partyers have dodged a bullet. Had they forced a Government Default they would have taken the Lion's Share of the Blame for the Fall Out mentioned in my First Point. This could easily have carried over to next year's Presidential Election and caused the defeat of the Republicans.

Fourth, it keeps Obama politically alive for the time-being. He was forced to distance himself from his Left Wing which in turn endeared himself to the Centre where he needs to be to effect a second win.

So all in all much was gained from so little.

But make no mistake, the Tea Party and the Republican Party are right to make Debt Reduction an issue. The States can no longer afford to spend today with tomorrow's money. In that regard it is imperative they win in November 2012.

With their President in place and with control of Congress they can in an orderly and systematic fashion bring Big Government to Heal.

Obama and company too are correct in their pursuit of more Taxes. As I have said in an earlier Blog - the US is in such bad shape that reductions alone cannot address their insolvency. Taxes must go hand in hand with reductions and one of the best taxes to levy would be a Value Added Tax like we in Canada and most of Europe possess.

So in with a Whimper but realize the American has been changed dramatically.

As I see it...

'K.D. Galagher'