U.S. Debt discussion

[Slava]

Originally Posted by Cowboy89

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).

Right, and that makes some sense. The reality is that politically they have made steps to deal with the debt situation though and the risk of default is virtually non-existent at this point?

Factor in that piddly little $2 Trillion error that they made in leading up to this downgrade and I can definitely see why the whitehouse is less than impressed with this decision. Its pretty pathetic.

[Tinordi]

"S&P doubted our political system's ability to act"

http://www.cnn.com/2011/POLITICS/08/...omy/index.html

[Cowboy89]

Originally Posted by Tinordi

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.

And yet no democrat sponsored bill that was proposed would have hit the 'funding gap' requirements outlined by S&P either. I agree that to make up the remaining $2 Trillion gap would certainly mean higher taxes and yes the Tea Party knuckle dragging on this is a problem, but yet no democrat 'balanced plan' that emerged pledged to do what was required either.

[Slava]

Originally Posted by Yasa

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.)

Absolutely the amounts would matter. I haven't seen anything about QE3 at this point....so its impossible to know. We're really putting the cart before the horse though; the probability of a US recession is still a minority. Jobs figures, corporate earnings and other signs still point to growth (although not enormous).

[seattleflamer]

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.

Not sure how the prez is playing games...unless rolling over and agreeing to everything the Republicans want is considered somewhere in the middle.

Clearly, the country is deeply divided but after exhausting all possibilities, Americans do the right thing so the saying goes.

The GOP is playing a zero sum game with this country's finances and it almost backfired on them last week.

They act like the majority when in fact they are the rump.

[Cowboy89]

Originally Posted by Slava

Absolutely the amounts would matter. I haven't seen anything about QE3 at this point....so its impossible to know. We're really putting the cart before the horse though; the probability of a US recession is still a minority. Jobs figures, corporate earnings and other signs still point to growth (although not enormous).

Tomorrow is the next scheduled FOMC meeting and Bernacke is making a speech at Jackson Hole on Aug 26. The street consensus is that the Fed will strongly word that rates increases will be on hold for an 'extended time' (some are interpreting it to mean H2 2013), and that they will start selling the short end of the curve and buying the longer end of the curve, which is in a lot of ways the same effect as QE3 without expanding their balance sheet nominally.

[Tinordi]

Representing the fundamental disconnect between the market and the right-wing politicians. The issue is deflation not inflation in the market right now. Fundamentally wrong policy direction the U.S. is going in trying to fight debt and inflation at this point.

This is what happens with mikey_the_redneck gets ahold of fiscal policy.

[VladtheImpaler]

Originally Posted by Tinordi

Representing the fundamental disconnect between the market and the right-wing politicians. The issue is deflation not inflation in the market right now. Fundamentally wrong policy direction the U.S. is going in trying to fight debt and inflation at this point.

This is what happens with mikey_the_redneck gets ahold of fiscal policy.

If they were trying to fight inflation, would they not be raising interest rates, rather than keeping them at effectively zero?

[Daradon]

Originally Posted by seattleflamer

Not sure how the prez is playing games...unless rolling over and agreeing to everything the Republicans want is considered somewhere in the middle.

Clearly, the country is deeply divided but after exhausting all possibilities, Americans do the right thing so the saying goes.

The GOP is playing a zero sum game with this country's finances and it almost backfired on them last week.

They act like the majority when in fact they are the rump.

I didn't mean the Prez in general, I meant his office, which I guess means his advisors and secretaries.

I would agree the Repubs are definitely the biggest part of the problem, though the Prez isn't blameless. He needs to grab the reigns and lead. Make the tough decisions, get tough, make proposals and stick to them. He needs to be working harder on the problem. Making allies, talking to the people, getting the democratic machine rolling the way the republican and Tea Party one is.

Rolling over is not exactly a great trait for a leader...

[Tinordi]

Originally Posted by VladtheImpaler

If they were trying to fight inflation, would they not be raising interest rates, rather than keeping them at effectively zero?

Focusing on debt reduction is, in essence, a policy of fighting inflation.

[Tinordi]

Originally Posted by Cowboy89

And yet no democrat sponsored bill that was proposed would have hit the 'funding gap' requirements outlined by S&P either. I agree that to make up the remaining $2 Trillion gap would certainly mean higher taxes and yes the Tea Party knuckle dragging on this is a problem, but yet no democrat 'balanced plan' that emerged pledged to do what was required either.

This is directly from S&P:

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy … [This] weakens the government’s ability to manage public finances …

So yeah, pretty much exactly what I said.

[macker]

Now Countries around the world sweat it out waiting for their inevitable downgrade. Once the country with the "reserve currency" is downgraded...and I guess if you are the reserve currency you can afford to be downgraded to some degree.....

[Flames Fan, Ph.D.]

Originally Posted by Cowboy89

And yet no democrat sponsored bill that was proposed would have hit the 'funding gap' requirements outlined by S&P either. I agree that to make up the remaining $2 Trillion gap would certainly mean higher taxes and yes the Tea Party knuckle dragging on this is a problem, but yet no democrat 'balanced plan' that emerged pledged to do what was required either.

huh?

Unless both Obama and Boehner were dissembling regarding the 4 trillion "grand bargain" then I think you're a bit off.

[Caged Great]

only a 633 point drop in the Dow.

Honestly, I was expecting a 900-1000 point drop.

[seattleflamer]

Originally Posted by afc wimbledon

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.

Ok. You don't like the word sympathy. How about taking responsiblity for your own actions? What about the buck stopping with you? From Dick Fuld of Lehman all the way down to some buyers, why is there a sense of entitlement that you deserve something or you can pass the blame?

It is a systemic issue that includes buyers right at very bottom of the rung. There is no right to home ownership and it doesn't magically stop at the brokers. Noone put a gun to buyers' heads and say buy, buy, buy. If they felt pressured to purchase then that was their mistake just as it is wrong to sell a mortgage that you know the person can't afford or create an appraisal that make the mortgage approval work or create financial products that created moral hazard.

Utimately, it is caveat emptor.

The "American Dream" lives on and people are still buying who waited because they couldn't afford at the time or guessed that we were in a bubble and are rewarded for their patience.

[Azure]

Originally Posted by seattleflamer

So is S&P saying plague to both your political houses then? If so, why the political commentary? The fact is the ceiling was raised and an agreement reached to cut ~1trillion in spending. They should be satisfied that the US is on the path to get it's fiscal house in order.

Based on S&P's logic or concern of the political situation, on November 12, 2012 they will upgrade back to AAA since, either the Democrats will have the house again or you'll see all 3 branches controlled by Republicans or neoReps.

I think the actual number given out by the credit rating agencies was cuts of up to $4 trillion in order to avoid a downgrade.

They didn't even come close to reaching that, and at some point you can't just keep crying wolf. In other words the US has to PROVE that they will reduce spending and balance the budget. And considering that they couldn't even raise revenues by closing loopholes, I wouldn't be to optimistic that real changes will be made.

[Azure]

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.

Like you said, obviously many people were buying homes beyond their means during the bubble.

Was it a $40,000 buying a $1.5 million dollar home? I don't have any hard evidence. But the $40,000 family was buying a home that they couldn't afford to make payments on.

Maybe it was a $350,000 home, or a $1.5 million dollar home. Either way the sub prime loans didn't help in the least bit.

[Azure]

Originally Posted by seattleflamer

The GOP is playing a zero sum game with this country's finances and it almost backfired on them last week.

They act like the majority when in fact they are the rump.

They're acting like a majority because Obama seems to have rolled over and given them the power to BE a majority.

[afc wimbledon]

Originally Posted by seattleflamer

Ok. You don't like the word sympathy. How about taking responsiblity for your own actions? What about the buck stopping with you? From Dick Fuld of Lehman all the way down to some buyers, why is there a sense of entitlement that you deserve something or you can pass the blame?

It is a systemic issue that includes buyers right at very bottom of the rung. There is no right to home ownership and it doesn't magically stop at the brokers. Noone put a gun to buyers' heads and say buy, buy, buy. If they felt pressured to purchase then that was their mistake just as it is wrong to sell a mortgage that you know the person can't afford or create an appraisal that make the mortgage approval work or create financial products that created moral hazard.

Utimately, it is caveat emptor.

The "American Dream" lives on and people are still buying who waited because they couldn't afford at the time or guessed that we were in a bubble and are rewarded for their patience.

The buyers did nothing wrong, they were offered a product, a house and a mortgage, they have utterly fullfilled their part of the bargin, they lived there until they could no longer afford it and then moved.

It was/is solely the vendors job to decide whether they were a good risk or not.

GM decided to sell badly made cars cheaply throughout the 80's, it isn't the fault of people who bought their pieces of crap that that business model ment that they ended up tanking and had to bailed out.

[VladtheImpaler]

Originally Posted by afc wimbledon

The buyers did nothing wrong, they were offered a product, a house and a mortgage, they have utterly fullfilled their part of the bargin, they lived there until they could no longer afford it and then moved.

It was/is solely the vendors job to decide whether they were a good risk or not.

GM decided to sell badly made cars cheaply throughout the 80's, it isn't the fault of people who bought their pieces of crap that that business model ment that they ended up tanking and had to bailed out.

Seriously? So, no personal responsibility as a consumer at all? "Can I afford it?" is not a question one should ask oneself?