U.S. Debt discussion

[Yasa]

Originally Posted by Slava

Well that is all well and good except for a few things: (A) a credit rating is not really a comment on the political climate. Its supposed to be a rating on the likelihood that you can pay your debts. (B) and perhaps most importantly, the US can always print more money. In other words taking the hyper-inflation aspect out of the equation (which is not a concern in the least right now!) its virtually impossible for the US to actually default. They theoretically ought to be either "AAA" or "D" in theory because if they were that close to a default they could turn on the presses...

More questions!

Wouldn't the amount of money being printed determine the risk of hyper-inflation, and do we have a general idea of how much the QE3 is going to create? Any amount of printing money would have an impact on inflation, but I'm not sure what percent would be the beginning of hyper-inflation.

I'm pretty sure the S&P credit downgrade is a scare tactic to pressure the American people to vote the illuminati into office and set in motion NWO. (Not really.)

[seattleflamer]

Originally Posted by MarchHare

Can you provide citations to show that this actually happened? Obviously many people (poor and middle class alike) were buying homes beyond their means during the housing bubble, but I think your example is more than slightly hyperbolic. Even the greediest, most short-sighted subprime lender is not going to give a $1.5M mortgage to a family with a $40k household income.

I took it as hyperbole but the idea that buyers and their mortgage team would find a way to get someone into a house at whatever cost with little regard for the consequences ring true.

[Daradon]

Originally Posted by Slava

Well that is all well and good except for a few things: (A) a credit rating is not really a comment on the political climate. Its supposed to be a rating on the likelihood that you can pay your debts. (B) and perhaps most importantly, the US can always print more money. In other words taking the hyper-inflation aspect out of the equation (which is not a concern in the least right now!) its virtually impossible for the US to actually default. They theoretically ought to be either "AAA" or "D" in theory because if they were that close to a default they could turn on the presses...

I would agrue that the likelyhood that you can pay your debts has a lot to do with the politcal climate. Who controls the policies that affect and guide the economy? If they can't come to agreement, or even a path of action on what to do in certain circumstances, that's going to affect the ecomony and eventually the ability to pay debts. Maybe not right now, but in the future.

What if they didn't reach a deal? What if they don't next time? What if one party wants to print more money but the other doesnt?

As well, while what you say about the situation is absolutely correct, absolutes and 'supposed to's' don't always work they way they should in the real world. People make these decisions in the end and they are prone to look at things like political climate and uncertainty.

And as I also mentioned, (and I forget if it was before or after the post you quoted) the deal was looked at as too little anyway. So if it took that much effort and fighting just to get a deal that was about a third of what many organizations wanted, I would say the reaction is pretty understandable.

[Cowboy89]

Originally Posted by Slava

Well that is all well and good except for a few things: (A) a credit rating is not really a comment on the political climate. Its supposed to be a rating on the likelihood that you can pay your debts. (B) and perhaps most importantly, the US can always print more money. In other words taking the hyper-inflation aspect out of the equation (which is not a concern in the least right now!) its virtually impossible for the US to actually default. They theoretically ought to be either "AAA" or "D" in theory because if they were that close to a default they could turn on the presses...

In the corporate sense a credit rating is more than just the raw numbers but also a reflection of the company's management's commitment to maintain or improve their rating. S&P is taking the view that the 'management' of the United States either doesn't care enough or lacks the ability to do anything meaningful about the debt situation, hence the downgrade.

The most dangerous thing that can happen as a result of this downgrade is for lawmakers to just say 'FU to S&P' and keep on keeping on. If nothing changes Moody's and Fitch will follow S&P and downgrade the US too, (Moodys has a negative outlook right now and can put them on negative watch for a downgrade again at a moments notice).

[Daradon]

As a slight aside, the downgrade might be the best thing for the US in the long run anyway. Hopefully it encourages the House and the Prez's office to stop playing games and get down to some serious work to help the country before it gets worse.

[FlamesAddiction]

Originally Posted by Daradon

As a slight aside, the downgrade might be the best thing for the US in the long run anyway. Hopefully it encourages the House and the Prez's office to stop playing games and get down to some serious work to help the country before it gets worse.

Hopefully.

The AA+ rating itself really only means that currently they are in good shape, but long-term they might be headed down the wrong path. It's a much needed wake-up call.

[afc wimbledon]

Originally Posted by seattleflamer

When I hear or read stories of buyers who didn't know or understand that their say, $300/mo payment would go up 4x or whatever as much, I don't have much sympathy.

There is a gov't regulation in existence since the 30s called the HUD statement which explicity and in layman terms gives your monthly payments, interest rate, potential payment scenarios and total interest paid, etc whether it is a vanilla 30 year fixed to the more exotic ARMS(adjustable rate mortgages) or option ARMs.

There is a naivite or greed involved if a. you believe or depend on your realtor, mortgage broker or appraisal firm to tell you how much you'll be paying instead of reading the HUD before signing the contract and b. you purchase a home knowing full well you can't afford the payments when your ARM resets GAMBLING that you can sell or flip before the reset.

There were certainly many situations where there was predatory lending but not enough to cause the entire crisis. So in that sense, buyers were part of the problem when they were gambling or didn't really understand what they were doing.

Who's talking about sympathy! they didn't have a house before, they don't have one now. The buyers are essentially no better or worse off.

It just bugs me people are blaming buyers for this mess, they tried to buy a house, they were sold the idea it was the american dream by both the dems and republicans, their bank told them it would lend them the money and the real estate market told them house prices would never go down always up so they would be able to sell and make a little money if they couldn't make the payments.

There are plenty of people in Vancouver with a sight better education that are doing the same thing, this market is in an utter bubble, due for at least a 20 or 30 percent correction and yet no one in the indutry is mentioning it, when our interest rates go up 5 or 6 points it wont be any better here.

[MarchHare]

Originally Posted by Daradon

As a slight aside, the downgrade might be the best thing for the US in the long run anyway. Hopefully it encourages the House and the Prez's office to stop playing games and get down to some serious work to help the country before it gets worse.

That assumes you've got two sides that are willing to work together and compromise. Based on what we've seen from the past few weeks, it's clear that the Tea Party members of Congress are playing an all-or-nothing game and don't care about the consequences to the economy. America's only hope is for Boehner and "moderate" (at least when compared to the radical Tea Party extremists) Republican members of Congress to ignore the lunatic fringe of their party and work with the Democrats to pass bi-partisan legislation that will provide a long-term, sustainable solution to the deficit crisis.

I'm not confident that will actually happen, though.

[Tinordi]

Republicans took the economy hostage over a routine point of procedure and appear to have had every inclination to shoot. That's where the debt downgrade stems from.

[Daradon]

^^^ Im not saying it will either, but it could be. It could be better than no downgrade until things get really fudged up. At least this way they have more time and a better situation in which to fix the problem.

Wake up call is the perfect term. Whether they listen or not... who knows?

[afc wimbledon]

Originally Posted by MarchHare

That assumes you've got two sides that are willing to work together and compromise. Based on what we've seen from the past few weeks, it's clear that the Tea Party members of Congress are playing an all-or-nothing game and don't care about the consequences to the economy. America's only hope is for Boehner and "moderate" (at least when compared to the radical Tea Party extremists) Republican members of Congress to ignore the lunatic fringe of their party and work with the Democrats to pass bi-partisan legislation that will provide a long-term, sustainable solution to the deficit crisis.

I'm not confident that will actually happen, though.

The trouble with the US system is power is divided so many ways, state and federal, congress, senate and Prez that it is glacialy slow and inneficiant regardless of whos in power, this has sort of worked ok as long as the country was awash with money but in less than ideal times it is going to screw them.

[RedJester]

Is it the Tea Party who believe that their country has been overthrown by Illuminati-Satanist, Socialist-Nazi Lizard people from the planet Nibiru? I can't keep up with these things, but for some reason I remember that being at the core of their movement.

So, pretty much anything that happens from here on out will be a self-fulfilling prophecy for them.

[Cowboy89]

Originally Posted by Tinordi

Republicans took the economy hostage over a routine point of procedure and appear to have had every inclination to shoot. That's where the debt downgrade stems from.

No, S&P made it very clear in their press releases that a $4 Trillion funding gap over 10 years needed to be closed to maintain their AAA rating. Meaning that all forms of proposed bills from the Democrats were offside of this too. Even if the same deal was struck mid-July there would be a downgrade none the less.

If you want to pin something on the tea party I would blame some of the market turmoil right now on Republican brinksmanship, but necessarily the downgrade.

[oilyfan]

Originally Posted by afc wimbledon

There are plenty of people in Vancouver with a sight better education that are doing the same thing, this market is in an utter bubble, due for at least a 20 or 30 percent correction and yet no one in the indutry is mentioning it, when our interest rates go up 5 or 6 points it wont be any better here.

Just as an aside in this discussion Vancouver is a bit of a different story especially over the last few years. Vancouver is seen as a very attractive market for housing for Hong Kong/Chinese well to do. There is a lot of Chinese money flowing into Vancouver, there is a long history there and a well established community to support this flow. When I travelled in China/HK recently I met a few people who told me they had condos/houses in Vancouver that they use as summer homes or for their kids education.
Apparently some of the best Cantonese cuisine restaurants in the world are in Richmond.

[Flash Walken]

I'm getting rather sick of this 'both sides' bullspit.

[Tinordi]

Originally Posted by Cowboy89

No, S&P made it very clear in their press releases that a $4 Trillion funding gap over 10 years needed to be closed to maintain their AAA rating. Meaning that all forms of proposed bills from the Democrats were offside of this too. Even if the same deal was struck mid-July there would be a downgrade none the less.

If you want to pin something on the tea party I would blame some of the market turmoil right now on Republican brinksmanship, but necessarily the downgrade.

S&P said that the failure of elected officials to address the funding gap is the big reason for the downgrade. That's a shot across the no taxes bow. Everyone knows that the big entitlement programs have essentially been cut to the bone now. The only remaining option is taxes and as a result they are making a political statement on the downgrade. The markets were relatively sanguine with the debt ceiling debacle knowing that taxes could always be raised. What S&P did was cast doubt on the ease of that policy option.

It's clear to me that this is a function of the extremism in Congress on the right. Markets will be fine however though. No shortage of people wanted to invest in U.S. debt.

[Flames Fan, Ph.D.]

Originally Posted by seattleflamer

I took it as hyperbole but the idea that buyers and their mortgage team would find a way to get someone into a house at whatever cost with little regard for the consequences ring true.

Generally agreed.

But let's not forget the role of the mortgage servicer. With the housing bubble, many of these guys explicitly tried to get more and more people into homes so that they had more mortgages to bundle up into new derivatives.

Their culpability in all this is further strengthened by the current mess that is surrounding the origination of loans, who owns what, robo-signing, etc...

Certainly people who didn't read or comprehend their mortgage contracts* and those being financially reckless played an important role. However, the servicer had all the motivation in the world to make sure that the customer be fit into a mortgage, regardless of the repercussions.


* I think this is why people like Elizabeth Warren have been popular in the public sphere. I'd like to think of myself as an educated guy, but there is probably no way that I could reasonably take a mortgage contract and understand its every detail by myself. Her push to simplify these agreements has a lot of appeal, imo.

[Tinordi]

Originally Posted by Flames Fan, Ph.D.

Generally agreed.

But let's not forget the role of the mortgage servicer. With the housing bubble, many of these guys explicitly tried to get more and more people into homes so that they had more mortgages to bundle up into new derivatives.

Their culpability in all this is further strengthened by the current mess that is surrounding the origination of loans, who owns what, robo-signing, etc...

Certainly people who didn't read or comprehend their mortgage contracts* and those being financially reckless played an important role. However, the servicer had all the motivation in the world to make sure that the customer be fit into a mortgage, regardless of the repercussions.


* I think this is why people like Elizabeth Warren have been popular in the public sphere. I'd like to think of myself as an educated guy, but there is probably no way that I could reasonably take a mortgage contract and understand its every detail by myself. Her push to simplify these agreements has a lot of appeal, imo.

Plain language laws threaten the law makers and more importantly, the interpreters of the law. The cynic in me thinks that while this is a great idea, it will never happen.

[Flames Fan, Ph.D.]

Originally Posted by Cowboy89

No, S&P made it very clear in their press releases that a $4 Trillion funding gap over 10 years needed to be closed to maintain their AAA rating. Meaning that all forms of proposed bills from the Democrats were offside of this too. Even if the same deal was struck mid-July there would be a downgrade none the less.

Right, but let's not forget the numbers:

- The debt ceiling negotiations result in a 2+ trillion dollar reduction in spending.

- S&P says their calculations say that it needs to be 4 trillion to keep triple A.

- It comes to light S&P made a 2 trillion dollar mathematical error (overestimate) with regard to their baseline projections


Sure looks to me like S&P wanted ~2 trillion in cuts (when you take out the 2 trillion math error) and they got it.

I'm personally of the opinion that this doesn't matter at all for the US. But S&P sure isn't doing itself any favours in trying to overcome that tag of incompetence they got when they were rating everything from investment houses as triple A in exchange for fees.

[afc wimbledon]

Originally Posted by oilyfan

Just as an aside in this discussion Vancouver is a bit of a different story especially over the last few years. Vancouver is seen as a very attractive market for housing for Hong Kong/Chinese well to do. There is a lot of Chinese money flowing into Vancouver, there is a long history there and a well established community to support this flow. When I travelled in China/HK recently I met a few people who told me they had condos/houses in Vancouver that they use as summer homes or for their kids education.
Apparently some of the best Cantonese cuisine restaurants in the world are in Richmond.

Vancouver is massively over priced and utterly reliant on Chinese money, Chinese money will turn off like a tap this year in a time of uncertainty and Vancouver will drop like a stone.