The Debt Ceiling

I think S&P may have overreacted a bit, in part as a push back against the fact that they were (and still are) under investigation by the SEC for their role in the mortgage meltdown.

http://online.wsj.com/article/SB10001424052702303499204576389973019552548.html

Some analysts describe it as a political action rather than an economic one, particularly since S&P made numerous references to the farce of a Congressional response -- the unwillingness of one side to compromise with their refusal to consider tax (revenue) increases.

In any case, lots of people will feel the impact given that the cost of borrowing will go up for the government and will trickle down to folks with all kinds of loans.

 

if memory serves, the ratings agencies are owned by wall street firms. their actions were fundamental to the derivatives bubble. they backed the securities. there was a flurry of information at the time of the crash about their problematic nature and actions. there was talk of a basic restructuring so that these ratings could be something like their fictional status, a reliable more-or-less outside evaluation of risk. but of course nothing happened---conservative paranoia about the Evils of Regulation combined with obama's pathological centrism to assure that nothing---at all---would change in the wake of a crisis of global proportions that resulted from conservative paranoia about the Evils of Regulation becoming policy.

so now, moodys/s&p (i know little about fitch) are as they have been: an expression of the political intepretation of recent events fashioned by and for the particular class interests of the financial wing of the american plutocracy.

and what the ratings agency are presuming to do here is attempt to enforce a political position dressed up as something pseudo-objective.

there is an argument that it is not the united states that is the most powerful country in the world, but rather it is the invisible empire of moodys/s&p.

 

I actually did my dissertation on the CRAs. The big three (Fitch, Moody's, S&P) are important not because the "market" actually cares about what they think. They are important because the SEC has written them into regulation, essentially privatizing the role of regulating risk exposure to these folks. In the end, the business of rating risk is essentially a mix of coercion and political blackmail. Most of the time, the rated corporations/countries actually pay for the ratings, and these agencies not only issue those ratings, but sell consultancy services on getting better ratings. In terms of sovereign risk, it is all about politics. Venezuela in the early 80s, Indonesia in the 90s, and so on, all got AA or better ratings and defaulted within 2 years.

In particular, this decision to downgrade the US debt is essentially repaying the republicans for their services. With the regulations the SEC had in place, these agencies could essentially "sell" AAA ratings without fear of repercussion. Therefore they issued all those AAA ratings for the securities that led to this recession, the A rating for Lehman brothers, etc. Last year, democrats passed legislation making the credit rating agencies liable when they issued knowingly misleading ratings. What is the first thing the republicans did when they got the house back? Strike down that provision. So now the CRAs can go back to selling favorable ratings to issuers who buy their services, and fear no repercussion for issuing bad ratings. And in exchange, republicans have more talking points about the need to cut spending.

But make no mistake, the "market" won't actually care about the ratings, only the talking heads. I bet there is no spike on interest rates on US bonds monday.

By the way, Standard and Poor's is owned by McGraw-Hill, which in turn is headed by Harold McGraw III, former member of W. Bush's transition team.

 

Would anybody rather our government had admitted we're bankrupt? I don't think so. As an unnecessarily powerful busy-body, globally, the US must either change its motives or our minds. Is blissful ignorance better? At least it's more peaceful.

 

The problem isn't being in debt. The problem is what current activities can be considered "ok debt". A lot on the right want the debt to continue the wars in Iraq and Afgan as well as other war funds. A lot on the left want to keep up the current spending on entitlements and social programs. Both sides want to spend like. Sadly, they both do not see the bigger picture of how much we are spending. At least the left has some sort of budget idea of ending the war and using that money to fund social programs.

I read some where that the math comes down to for every dollar we spend, only 30 cents comes into the coffers to pay for it. The inflation rates of spending soon will be $1.50, but agreed cuts will drop it to $1.30. Yet, the income will only adjust to 50 cents. All in all, the last second agreement was to just add more debt, and not let income raise enough to pay for any of it.

Its sad that the only difference between the fiscal conservative that left office spending $900+ billion a year to the social liberal spending $1.2 trillion a year is the words used for name calling.

 

http://www.washingtonpost.com/busin...ebt-showdown/2011/08/03/gIQA9uqIzI_story.html

The origins of the debt showdown. The GOP was planning using it for leverage for months....

 

Leverage has so many meanings, how can't we expect our creditors to flick us off the planet? Right. We're like Charlie in the glass elevator, hoping the ceiling will break, but not hurt us when it falls. Fretting about how much we owe to each other should come after acknowledging it. I think we haven't done so, yet.

 

As indicative of just how useless the S&P ratings are, and just how much the punditry is made up of idiots in this country, 10 year US bond rates are down from friday, and at or near historical lows. What does that mean, exactly? That people are trying so hard to buy US bonds that they are accepting very low interest rates in return. It is the equivalent of the price of the bond going up. So people are buying that which S&P rated as a riskier investment now. Meanwhile, stocks collapse. But S&P doesn't rate stocks, it rated US bonds. But the commentariat is quick to blame the downgrade for the stocks. If anything, the "market" is simply wary of a prolonged recession driven the budget cuts. Because all the evidence, and I do mean all the evidence, points to investors really only trusting bonds. Something that would not happen were there significant worries about default.

 

if only the idiocy was confined to the commentariat (i like that word, btw). this from the guardian live blog on the stock markets this morning:

http://www.guardian.co.uk/business/2011/aug/08/stock-market-turmoil-us-downgrade-eurozone-crisis

yet somehow these idiots are still taken seriously. and even more astonishing, the degenerate socio-economic worldview they espouse is still legitimate in the united states.

 

I also care about the people who employ my services. If bad tax policy prevents them from hiring me, my company or paying me - that becomes my problem.

Sub-chapter S corporations the net profits flow to the individual's tax return. If not sub-chapter S, under sub-chapter C, the corporation pays a corporate tax rate and then anything returned to shareholders is taxed as a dividend or capital gain - in addition if a shareholder is an employee they pay the personal income tax rate on income same as everyone else.

You are wrong, what I presented was factual. There is in fact a role for government in free market capitalism. It is in fact true that there are some things government does well, more efficiently than can be don in the private sector of a free market economy. It is in fact true that the US government is currently doing things that could be done more efficiently by the private sector.

Yes.

No. People make decisions based on available information and they tend to do what they perceive is in their best interest. I could give examples, if interested, to support this point and to illustrate the errors in your point of view on this.

I know Nike has had issues in the past with child labor, are you implying that it is a current and on-going problem?
Why do you blame Sprint for trying to control their costs? Why do you assume consumers won't vote with their consumer dollars if they do not accept the way Sprint does business? If outsourcing call centers puts Sprint at a disadvantage, isn't this a self-correcting problem in a true free market system? Why do you think Sprint outsourced to other countries rather than set up call centers in inner-city urban areas where unemployment in some communities is over 50%? Has a liberal ever stopped to think why that happens? I did not think so!

Market share.
Profits.

Like with tax policy, when the government lowers rates, lower prices to consumers may actually lead to greater revenues and profits. Lower prices may lead to more people being willing to purchase the sevice or increased market share (meaning either a bigger pie, a bigger slice of the pie or both).

 

The economy is doing fine.

The problem is less people have money

 

How many times do I need to repeat that I do not trust Obama and many others in Washington. Show me spending cuts and discipline first, then let's talk taxes.

And of course you ignore the numbers above. Think about it. I would have to generate $2.5 million to net $250K, meaning out of that $2.5 million, $2.25 of it goes to the benefit of others. Including a hell of a lot in various taxes.

And of course you ignore what I put at risk and my journey. I work my ass off, pay taxes. I save, pay taxes on interest. I invest, pay taxes on gains. I accumulate a little wealth. Then one day I decide to put every thing at risk to start a business. I start over, from zero. I work my ass off, pay taxes. I save, pay taxes on interest. I re-invest in my business. I invest to diversify, pay taxes on gains. Economy goes south, business suffers, I face closing. What do I do, I risk everything again for my business. I start over from zero.....

Let me be very clear to any young person reading this. Unless you can start a business with someone's money other than yours. Don't even think about it. Keep your 9 to 5 job, take 3 to 4 weeks of vacation per year, have someone else pay for part of your benefits, work 40/50 hours per week and leave it at the office! Don't be a fool and do what I did, it is not worth it and will never be worth it as long as people see small business as a bottomless pit of money to pay for every conceivable social program.

 

Is your mistrust of Obama based on one of your patented "gut feelings", or has he actually signed policy that has negatively affected your business?

And thanks for addressing none of my points.

 

When will you folks get your message consistent? One day the Tea Party is just a flash in the pants, is not and won't be relevant. The next, the Tea Party is responsible for the S&P downgrade.

Roach, I guess this Tea Party thing is like you playing chess with a 6 year-old (the Tea Party is more like 3 or 4 years-old) - to which I say adult chess players don't play chess with 6 year-olds. If Obama and Democrats are the adults and they got spanked by the Tea Party, I guess I would want better representation if I were a liberal.

tp://www.thetfp.com/threads/the-debt-ceiling.248/page-7#ixzz1USfzldKr​

--- merged: Aug 8, 2011 6:18 PM ---

I will agree, in part, that there are more issues than the publicized top tax rates. These issues involve the over-all anti-business climate in this country. The battle front is tax policy. We (small business) must win this battle and we will go on to other issues.

Like i tried to illustrate with Obama Care. When and if, I start hiring people at this point I have no firm understanding of the impact the legislation and regulations (hundreds of thousand of pages are expected) will have on my bottom line. Perhaps that is the next best business opportunity ( one that will not create real wealth), lawyers, accountants and healthcare professions selling their services on understanding Obama Care. I am either going to invest 100's/1,000's of hours understanding Obama Care, or pay thousands of dollars on expert help. Either way, it is not going to be productive and not help me hire a productive employee.

 

Ace,
if there was any chance you were correct:
1- The recession would be just US based.
2- The best performing G7 economies wouldn't be Germany and Canada (significantly higher taxes and more regulation)
3- You wouldn't have a situation of very low interest rates and very low consumption.

 

Also:
Inflation and inflation expectations wouldn't be plunging.

If this was at all a supply side recession, created by fears of regulation, "anti business climate," you wouldn't by definition, be having lower inflation, low interest rates.