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Standard & Poors Economic Pearl Harbor

Apr. 19, 2011 8:51 AM ET
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Economic Pearl Harbor Warren Buffett

An Economic Pearl Harbor

From John Nyaradi Wall Street Sector Selector

No doubt there will be gallons upon gallons of ink spilled regarding today's action by Standard and Poors in which they took the historic step of downgrading the United States' long term credit outlook from stable to negative.

As far as I know, this is the first time in history that such an event has occurred, and the first time since the mid-1990s that any U.S. debt has received more than a hint of a "negative" rating that subsequently, never transpired.

However, today Standard and Poors suggested that there's a one in three chance of the U.S. credit rating being downgraded within the next two years, in effect starting a "ticking clock" for our country to get its fiscal house in order.

Across the financial press today one could read a wide range of opinions, covering the gamut from Armageddon at hand to the view that all is well and that S&P doesn't know what they're talking about and simply overacted.

Some say it doesn't matter. Others say it's the beginning of the end.

My view is that today's announcement was simply a reaffirmation of the obvious and that is that we've been spending beyond our means for more than 30 years and that now the bill is close to coming due.

As in personal family finances, you can only rob Peter to pay Paul for so long and there are only so many pockets you can pick until you run out of pockets.

Today, it appears that the United States might well have run out of pockets and this day, like Pearl Harbor, could be a national "economic wake up call" that the party is over and that it's time to get our house in order and dig ourselves out of the huge hole in which we have placed ourselves.

No one political party can be blamed. No one economic policy or Federal Reserve Chairman can be held responsible, although Presidents and political parties of all stripes and Fed Chairmen for the past decades certainly must share the "blame."

But the point of fact is that we all are accomplices in this unpleasant situation in which we now find ourselves.

Without regard to political affiliation, the road to today's shocker from Standard and Poors began with "Reaganomics" at which time we went from "tax and spend" to "borrow and spend," neither of which, of course, makes for a pleasant outcome. And since 1980, for more than 30 years now, we have been on this national drunken orgy of easy credit and easy money and today, the bill came due.

Although this isn't war time and there can be no justifiable comparison to a world war, today's situation is similar to the time before Pearl Harbor in that we have been asleep and today was our wake up call. Now the only question is will the American spirit rise and face the challenges of our day (as we always have) or will we slide into obscurity and insignificance like so many world powers have before us?

I submit that we can face this challenge and return ourselves to grandeur and glory...that is the American way.

We have the greatest universities in the world. We have an entrepreneurial and creative drive unmatched by any nation in the world. We still, in spite of our recent three decade drunken orgy, have by far the world's largest economy, and we have unquestionably been through much darker and more dangerous times. (think Adolph Hitler, the Great Depression, the Civil War that began on April 12, 1861, 150 years ago last week)

At dinner this evening, my wife and I and our son, a recent graduate of the University of Texas, (which, by the way, has the second largest academic investment fund in the country after Harvard and this week bought nearly a billion dollars of physical gold) enjoyed a very spirited discussion around this very subject. At 23, he's full of ambition and idealism, much as we all were at his age. He argued persuasively for a bright American future, and I would agree with the addition of one caveat of 60 years' experience on this good earth.

America's future is brightest at its darkest moments, as it was during Pearl Harbor, the Depression and 9/11, if we pull together, put our petty differences behind us and rise up as "one Nation." We have done it before. We can do it again. The road will be long and full of pain and sacrifice, but we still have all that is necessary to pass along the American Dream to our children as it was passed by our parents to us.

Have a good evening and we'll talk soon,

John Nyaradi Wall Street Sector Selector

Wall Street Sector Selector

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