A Ponzi Scheme Called America

By Tuesday, October 16, 2012

dollar with magnifying glassAs we all know, the eurozone credit crisis has taken away any chance of economic growth in the global economy.

Spain—the current epicenter of the credit crisis in the eurozone—has seen its credit rating downgraded to a credit rating of BBB- from BBB+ by the Standard and Poor’s (S&P) credit rating agency. A credit rating of BBB- is the lowest investment grade credit rating issued by S&P and just one notch above “junk” status. (Source: Standard & Poor’s, October 10, 2012.)

In 2007, eurozone member Spain saw its national debt equate to 36% of its gross domestic product (GDP) that year. Now, with the government’s plan to borrow more than 207 billion euros next year, the country’s debt as a percentage of GDP will reach 91%. (Source: Business Week, October 11, 2012.)

Let’s not forget; Spain is a major contributor to the eurozone economy and is the 12th largest economy in the world.

From all of this, what bothers me is that the U.S. economy—the biggest economy in the world—is sitting on the credit rating of AAA, as issued by Moody’s Investor Services, and AA+ by S&P, the same credit grading that puts Spain’s rating at BBB-.

While the U.S. enjoys a strong credit rating of AAA, the national debt compared to GDP for the U.S. is much higher than that of Spain, a eurozone country. In the U.S., this year’s GDP is estimated at $15.5 trillion. (Source: Bureau of Economic Analysis, September 27, 2012.) But the total national debt of the U.S. stands at $16.2 trillion (see the U.S. debt clock at www.investmentcontrarians.com). This makes the U.S. national debt equal 105% of GDP, and it is growing each passing day!

So why does Spain, an economy in the eurozone with a debt to GDP of 91%, have its credit rating cut to almost junk, while the U.S. enjoys one of the top investment grade credit ratings when its debt-to-GDP ratio easily surpasses that of Spain?

Spain will eventually get a bailout from its eurozone peers—the funds it needs to recapitalize its banks will be given to the government.

When it comes to the U.S. economy, who will come to its rescue?

Oh, I forgot the big difference. When the U.S. needs to issue Treasuries to pay for its debt, the Federal Reserve prints money to buy the debt. That’s the difference; the U.S. prints money, Spain can’t. The U.S. is a Ponzi scheme, and eurozone member Spain isn’t; so the U.S. gets a top credit rating. Now I understand how it works.


About the Author | Browse Michael Lombardi's Articles

Michael Lombardi founded investor research firm Lombardi Publishing Corporation in 1986. Michael is also the founder of the popular daily e-letter, Profit Confidential, where readers get the benefit of Michael’s years of experience with the stock market, real estate, economic forecasting, precious metals, and various businesses. Michael believes in successful stock picking as an important wealth accumulation tool. Michael has authored more than thousands of articles on investment and money management and is the author of several successful investing publications,... Read Full Bio »

  • Richard Lawrence

    Isn't this what Madoff said while he was getting carted off to jail? Is this news to anyone?

Sep. 4, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.62%
10-year U.S. Treasury Yield 2.19%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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