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Five Things You Need to Know: End of Days Signs


Strange dead animals. Stock market crashes. Sovereign debt downgrades. It feels like the end is nigh.

1. End of Days Signs

"And the kings of the earth, and the great men, and the rich men, and the chief captains, and the mighty men, and every bondman, and every free man, hid themselves in the dens and in the rocks of the mountains."
-- Revelations 6:15

The dead white mammal was spotted on a Minnesota county road. It had five claws, long toenails and dark tufts of hair on its back and head. No one could say just what in the hell it was. Some guessed a badger with mange. Others said it was probably a diseased skunk, wolverine or maybe some kind of half-breed pigwolf. Still others whispered it might be the elusive and mythical chupacabra. But on one thing everyone agreed: "It's a strange animal and I hope we don't have anymore around here," Jane Murphy of Alexandria told KSAX TV, giving specific voice and presence to the ultimate fear harbored by all involved.

Strange dead animals. Sovereign debt downgrades. Stock market crashes. The rich are on the run and every bondman is hiding in his den or in the rocks of mountains. These are omens. End days signs. The newspapers and preachers say so.

That's quite a roundup, eh? Grim stuff top to bottom. And all because of a sovereign debt downgrade? No, I don't think so. After all, this is America. Once the credit rating goes we'll steal the appliances, burn the couch, kill the pets and max out all our credit cards in Vegas.

Since Friday I've probably been asked more than two dozen times what this all means. The irony is that we already know what it means. If in July you had asked any voting-age adult to describe what's wrong with America, you would have gotten a list that began somewhere around too much government debt and ended somewhere around too much government spending, with the precise ordering of the contents in between neatly sortable by demographic, age and party affiliation. Which is pretty much exactly the same list you would have gotten had you asked the question in 2001, 1991, 1981 and 1971 for that matter.

Standard & Poor's outlined on Friday afternoon what we've all been thinking for the past 70 years -- the exact duration of the U.S. AAA credit rating, incidentally -- explicitly stating that lowering the rating of U.S. creditworthiness was because the "effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges." Hey, that's exactly what we've all been saying! For decades!

A U.S. debt downgrade. What a strange dead animal to find in the middle of the road. What can it all mean? Will interest rates go up? Will the dollar go down? Will I pay a higher interest rate on my credit cards? My auto loan? My mortgage? I just saw this headline:

Treasurys Rally as U.S. Debt Remains Go-To Haven

Hahaha. Do you know what that means? It means interest rates are lower, Treasury bonds are rallying as investors seek the safety of Treasury bonds after S&P downgraded Treasury bonds. That's all you need to know about the sovereign debt downgrade.

2. Stumbling From One Debt Crisis to Another

"It seems the world has spent the years since 2008 stumbling from one debt crisis to another," author David Graber wrote Saturday in the Wall Street Journal. "In fact, if we count the Third World debt crisis, which did after all affect most human beings on the planet, the world has been in a continual series of debt crises since the '70s." Indeed.

If the name David Graeber rings a bell maybe it's because you recall I wrote about his excellent new book, Debt: The First 5,000 Years in June. Graeber's anthropology background gives him a unique perspective on debt and the meaning of it in our society, a meaning that is often obscured by how close we are to things. (For example this morning, apparently, many of us believe the sovereign debt downgrade is meaningful.)

"Instead of setting up great overarching institutions designed to protect debtors, we created institutions like the S&P or IMF, essentially, designed instead to protect creditors. It has become increasingly apparent that the system simply doesn't work," Graeber observes. Where does this inevitably lead? One of two probable paths, with the best option the conclusion he hopes for in his book: "It seems to me that we are long overdue for some kind of Biblical-style Jubilee: one that would affect both international debt and consumer debt. It would be salutary not just because it would relieve so much genuine human suffering, but also because it would be our way of reminding ourselves that money is not ineffable, that paying one's debts is not the essence of morality, that all these things are human arrangements and that if democracy is to mean anything, it is the ability to all to agree to arrange things in a different way." The other option is decidedly less attractive for everyone.

3. After the US, Who's Left?

After S&P's downgrade of U.S. debt, who's left on the triple-A rated list of sovereign debt issuers? Not many. But the list may surprise you.

There are 12 countries with CDS rated triple-A:

United Kingdom
New Zealand

Wait, France? Really S&P? France? "Yes, we better sit down and take a hard look at U.S. sovereign debt before we even think about France," the review committee apparently said.

Meanwhile, this is what the world looks like through Standard & Poor's ratings lens (via Wikipedia)

  • Green - AAA
  • Turquoise - AA
  • Lighter blue - A
  • Darker blue - BBB
  • Purple - BB
  • Red - B
I kind of like the new turquoise color.
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No positions in stocks mentioned.

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