Its Happening: US Debt Yields Rise Above Corporate Debt
When it comes to the alphabet AAA and AAA are exactly the same. But when you compare US debt to that of American businesses, investors aren’t so willing to say AAA and AAA are exactly the same.
Its becoming increasingly evident that the United States has outstayed its welcome with investors who were once willing to fund all of its extreme spending. With the 2010 budget for the federal government towering above 2008 and 2009 spending, investors have more faith in businesses to repay debt than they do the Federal Government. Or so says the bond yields.
Painting the Picture
The list of American businesses with better credit than the Feds continues to grow. Berkshire Hathaway, Proctor and Gamble, Johnson & Johnson, Lowe’s, and Abbot Laboratories all have or have recently had lower yielding bonds than US Treasuries, showing that the full faith and credit of the United States (taxing power) is less valuable to investors than a businesses bottom line.
US Could Lose its AAA Status
In 2010 7% of all tax revenue will be used to pay interest in the national debt. This debt servicing, as it is known, will grow to 13% by 2013 with all things being equal. At that rate, Moody’s confesses, the US no longer deserves to be triple-A and could very well lose its rating and be forced to pay even higher prices to borrow money. A scary situation indeed.
Debt is Destroying Productivity
The US debt has long strangled the US economy into a downward spiral. With 7% of all tax revenue dedicated just to interest, man-hours of every type are being flushed down the toilet to pay for costly government programs of the past. The borrowed funds, now spent, no longer deliver anything to the populace and only serve to burden the taxpayer into paying hundreds of billions of dollars for nothing. Even worse, much of the interest goes to foreign investors, increasing the annual balance of trade deficit.