n a moment, I’ll show you why their failure to respond is ripping off investors,
how it’s exposing millions to a financial atom bomb, and what you can do for
immediate fallout protection.
But first, this question: Did S&P finally respond to my challenge last week when
it “downgraded” U.S. debt to “negative”?
To the casual observer, that might appear to
be the case. But in reality, their action — much like recent steps by Washington
to “fix” the deficit — was little more than smoke and mirrors.
Here are the facts:
S&P did NOT change, even by one tiny notch, its “AAA” rating for U.S. government
debt. It merely changed its future “outlook” for the rating.
S&P did NOT have the courage to do what’s right for investors and for the
country today. It merely said it might do
something a couple of years from now.
Worst of all, S&P has done nothing to change its practices that have caused so
much pain for investors in recent years. As before, it’s typically quick to
upgrade its best-paying clients, but often delays meaningful downgrades until
it’s far too late.
It’s the Greatest
Financial Scandal of Our
Time, and the U.S. Government’s Triple-A
Rating Is the Most Scandalous of All.
In proportion to the size of its economy, the U.S. government has bigger
deficits, more debt, plus bigger future liabilities to Medicare and Social
Security than many countries receiving far lower ratings from S&P, Moody’s and
Compared to lower rated countries, the U.S. also has a greater reliance on
foreign financing, a weaker currency, and far smaller international reserves.
The U.S. government is exposed to trillions of dollars in contingent liabilities
from its intervention on behalf of financial institutions during the 2008-2009
The U.S. Federal Reserve, as part of its response to the financial crisis, may
be exposed to significant credit risk.
The U.S. economy is heavily indebted at all levels, despite recent deleveraging.
U.S. states and municipalities are experiencing severe economic distress and may
require intervention from the federal government.
The U.S government’s finances could be adversely impacted by a rise in interest
The U.S. dollar may not continue to enjoy reserve currency status and may
continue to decline.
Improper payments by the federal government continue to increase despite the
Improper Payments Information Act of 2002.
The U.S. government had failed its official audit by the Government
Accountability Office (GAO) for 14 years in a row, with 31 material weaknesses
found in 24 government departments and agencies.
This is no secret. Nor am I citing original facts.
They are the same facts that have been written about extensively by Jim Grant,
editor of the Interest
Rate Observer, brought to light by the U.S. Government Accountability
Office and widely publicized by its former chief, David Walker.
They are similar to the points made in recent warnings by the International
Monetary Fund, the Congressional Budget Office, the European Central Bank, the
president’s deficit commission, and even the Big Three Rating agencies
And yet, the U.S. government STILL gets a AAA rating from all three?
And all the while, other countries, which do NOT have these problems, get far
This Doesn’t Even Pass a
Simple Smell Test.
It Reeks of Egregious Conflicts of Interest.
We know that the Big Three rating agencies failed to warn investors about giant
insurers that went bankrupt in the early 1990s.
We also know how they bungled their ratings of Enron in 2001 and gave stellar
grades to big Wall Street firms that failed in 2008.
So it’s fair to suspect that similar problems afflict their sovereign debt
ratings. Indeed …
If the Big Three rating agencies downgraded the debt of the United States
government, they would come under tremendous pressure to ALSO downgrade big
borrowers that count on the U.S. government for sponsorship, financing or
But those big borrowers PAY the rating agencies huge yearly fees for their
ratings and would be less willing — or even less able — to continue those
payments if their debts are downgraded.
Why You’re Getting
Ripped Off (and Worse!)
If you think this fundamental dishonesty doesn’t impact you directly, think
Even if there are no further consequences, you’ve already paid
a high price for it:
The rating agencies
are understating the risk of your investments, and consequently, those
investments are paying your LESS yield than you deserve to compensate you
for the real risk you’re taking.
This is true not only for U.S. Treasury securities, but also for virtually every
bond ever issued.
If the U.S. Treasury itself were graded at its appropriate level, thousands
of other securities, traditionally assumed to be of lower quality than
Treasuries, would need to be seriously reviewed for parallel downgrades. But
until that review takes place, many get away with paying you less interest
than you deserve.
You’re also not getting a fair interest rate on bank CDs or insurance policies.
Nor is this impact limited to fixed instruments. If bonds are downgraded and
must pay higher yields, nearly every other investment in the world would be
pressured to do the same.
That’s why this is a financial atom bomb. And that’s why it’s shameless. If the
rating agencies had rated U.S. debt honestly years ago, we might not be in this
What’s worse is that …
Treasury note and bond investors are exposed to far greater risks than
they’re being told about. Even assuming the U.S. government never defaults,
you can lose a lot of money from declining market values of notes and bonds,
from the declining purchasing power of your dollars, or both …
Citizens and residents of the U.S. are exposed to far greater risk of rising
taxes and slashed benefits payments than is implied in the triple-A ratings,
and, alas …
Our entire country and way of life is in far greater danger than Washington
or Wall Street would have you believe.
The outlook: With
each day that passes, investors in the U.S. and overseas will gain greater
clarity of vision, smell the dangers, and begin to recognize that the emperor
has no clothes.
They will respond by taking action, driving U.S. bond prices and the U.S. dollar
You need to take protective steps AHEAD of time.
First and foremost, see
my video, American
Apocalypse. And even if you’ve already done so, you may want to view it
again — especially in light of these new developments.
Second, sell any Treasury notes and bonds that you may still be holding — either
directly or via a fund. Bonds (defined as 10 to 30 years) are the riskiest.
Notes (one to 10 years) are also subject to declines, especially in the longer
maturities. And bills (under one year) are the least risky.
Third, for protection against falling bond prices, Weiss Research’s Mike Larson
recommends inverse Treasury ETFs like TBT — a fund that’s designed to go up 2%
when Treasury bond prices fall by 1%.
Fourth, for protection against a falling dollar, consider ETFs that buy
exclusively the strongest foreign currencies like the Australian dollar and
Fifth, to hedge against inflation, gold ETFs like GLD are among the simplest
And above all, stay SAFE!
Good luck and God bless!