This whole debate in the news now about whether the United States will default on their federal debt has become, well, the talk of the town [in Washington]. Many pundits on both sides of the aisle have come out to say “no way will the U.S. government default on its debt”. Now that’s comforting until you realize that these are the same folks who insisted that inflation was transitory 18 months ago. How is that working for their credibility about now – namely the current Federal Reserve Board, the U.S. Treasury Department, and the White House? It isn’t.

We’ve accumulated $31.5 trillion in debt, which represents about 75% of our Gross Domestic Product (GDP). But wait, that’s only if we can continue to grow at these same 3% levels each year. See how this works now? What they’re not telling you is that our national debt will easily exceed America’s annual output in the absence of that 3% growth rate per year. If you go back to my Obama 2.0 argument for how the Biden Crime Family White House will be an extension of Obama’s miserable growth rates for his 8 years[?], the picture looks bleak. That’s a book yet to be written, as it’s still too early to say but the opportunity for Joe and the brainless Democrats to really screw this thing up is still very much in play.

What I want to convey here is what is highly probable given the current backdrop, something that would certainly roil U.S. financial markets. The last time this happened it was mighty ugly [for investors]. Only twice before has America’s debt been downgraded by the major rating agencies. And while a default may not be in the cards, a debt downgrade is punishment enough, and it’s definitely [there] in the cards. In fact, I think at this point the stars are aligning to have this come to fruition; a downgrade of our federal debt is about a certainty at this point. Incompetent Democrats are running the country, and after numerous policy errors out of Washington which won’t disappear on their own; policy errors stack, one on top of the other, all weighing on our annual GDP output, placing pressure on Washington’s ability to pay interest on a massive load of debt.

More bad news: When countries suffer a sovereign debt downgrade what happens? Well, it means they will have to pay higher interest rates to entice buyers of their paper thereby raising their cost to borrow. Thus, longer term rates will tend to rise. Bad for the issuer but at least investors receive a higher yield [due to the added risk factor associated with getting re-payed]. Once that debt service grows larger how will the United States afford to pay more interest when our GDP output is tepid? [the Obama Socialism 2.0 effect]. What you need to know is that these sovereign debt downgrades will send ripple effects throughout U.S. financial markets, where I expect a “contagion” to occur, or negative price reactions across all financial instruments.