Moody’s: Why the U.S. Is Still AAA(economix.blogs.nytimes.com)
economix.blogs.nytimes.com
Moody’s: Why the U.S. Is Still AAA
http://economix.blogs.nytimes.com/2011/08/08/moodys-why-the-u-s-is-still-aaa/
11 comments
However, it has not only become questionable whether Washington will be able to make the necessary changes in the foreseeable future, the corruption that underlies this inability is very hard to get rid of and may cripple the government even further.
The issue in the US is that there is a genuine ideological split between the two parties about what the US government should look like. The Democrats want a big government, which takes in a lot of taxes and provides a lot of services to everybody. The Republicans want a small government, which takes in minimalist taxes and provides minimalist services. (I'm not interested in debating the relative merits of these two ideologies today.) And this isn't just the parties' ideologues, either -- the same ideological split genuinely exists in the US public (contrast to many other countries where the "big government" types seem to have largely won the argument).
Either party could easily balance the budget on its own, given unlimited power. However, because of the way the US political system just happens to work, it's very hard to do anything without getting at least some of the other guys on board.
The Republicans have for many years had a "starve the beast" strategy, figuring that if you keep on cutting taxes then eventually the Democrats will have to agree to cut spending as well. In recent years the Democrats have invented the opposite "gorge the beast" strategy, in which you figure that if you keep on increasing spending then eventually you'll be able to pressure the Republicans into agreeing to tax increases. And the poor beast being starved at one and and gorged at the other starts to... wait, no, this analogy is breaking down.
What's the solution? There really isn't one. The ideological split in the American public is real and it isn't going away any time soon, and folks need to stop proposing "solutions" which basically just come down to "all we need is for the other side to come over and agree with us and it'll all be rosy." That's not gonna happen.
But perhaps the first step is to acknowledge that this ideological split is genuine, and real, and does actually reflect the ideological split within the US population. Perhaps we can compromise, but first we have to acknowledge precisely what it is we're compromising about.
edit: Wow, I can't believe this got modded down. I guess the true believers in the "No really, it's the other guys' fault" die hard.
The issue in the US is that there is a genuine ideological split between the two parties about what the US government should look like. The Democrats want a big government, which takes in a lot of taxes and provides a lot of services to everybody. The Republicans want a small government, which takes in minimalist taxes and provides minimalist services. (I'm not interested in debating the relative merits of these two ideologies today.) And this isn't just the parties' ideologues, either -- the same ideological split genuinely exists in the US public (contrast to many other countries where the "big government" types seem to have largely won the argument).
Either party could easily balance the budget on its own, given unlimited power. However, because of the way the US political system just happens to work, it's very hard to do anything without getting at least some of the other guys on board.
The Republicans have for many years had a "starve the beast" strategy, figuring that if you keep on cutting taxes then eventually the Democrats will have to agree to cut spending as well. In recent years the Democrats have invented the opposite "gorge the beast" strategy, in which you figure that if you keep on increasing spending then eventually you'll be able to pressure the Republicans into agreeing to tax increases. And the poor beast being starved at one and and gorged at the other starts to... wait, no, this analogy is breaking down.
What's the solution? There really isn't one. The ideological split in the American public is real and it isn't going away any time soon, and folks need to stop proposing "solutions" which basically just come down to "all we need is for the other side to come over and agree with us and it'll all be rosy." That's not gonna happen.
But perhaps the first step is to acknowledge that this ideological split is genuine, and real, and does actually reflect the ideological split within the US population. Perhaps we can compromise, but first we have to acknowledge precisely what it is we're compromising about.
edit: Wow, I can't believe this got modded down. I guess the true believers in the "No really, it's the other guys' fault" die hard.
I'd caution against taking the Republican's word that they want a 'small government'. History contradicts this assertion -- the last 3 republican administrations increased the budget deficit.
I think Republicans want to allocate funding differently from the Democrats, but I'm not so sure they want to do any kind of 'small government'.
I think Republicans want to allocate funding differently from the Democrats, but I'm not so sure they want to do any kind of 'small government'.
Amen. 100% of problems mentioned by grandparent (Bush tax cuts, Medicare prescription bill, wars in Afghanistan and Iraq) were enacted by a Republican president.
Can you find me a recording of any Democratic officeholder saying they're "for Big Government"? I don't think even Bernie Sanders is on the record with something like that. Fox News saying what democrats think is not what democrats think.
Which Democratic spending initiatives are contributing to the current deficit? The Democratic war in Iraq, or the Democratic Homeland Security Dept? The Democratic Medicare Part D? You can argue the stimulus but that spending was all temporary and is gone by next year. The healthcare bill reduced gov't healthcare spending (and the tea party ran against it on a obama-is-taking-away-your-medicare scare campaign, I remember the attack ads, irony is not dead).
1999 wasn't that long ago. We had a surplus. The ideological split is mostly the result of opportunism by Tea Party commentators/legislators and the complete illegitimacy of any Democratic president in the eyes of about 50% of Republicans. Democrats will bend over backwards to not be perceived as ideological, as we saw last week.
Which Democratic spending initiatives are contributing to the current deficit? The Democratic war in Iraq, or the Democratic Homeland Security Dept? The Democratic Medicare Part D? You can argue the stimulus but that spending was all temporary and is gone by next year. The healthcare bill reduced gov't healthcare spending (and the tea party ran against it on a obama-is-taking-away-your-medicare scare campaign, I remember the attack ads, irony is not dead).
1999 wasn't that long ago. We had a surplus. The ideological split is mostly the result of opportunism by Tea Party commentators/legislators and the complete illegitimacy of any Democratic president in the eyes of about 50% of Republicans. Democrats will bend over backwards to not be perceived as ideological, as we saw last week.
> Which Democratic spending initiatives are contributing to the current deficit? The Democratic war in Iraq, or the Democratic Homeland Security Dept? The Democratic Medicare Part D?
With all of those repub approved initiatives, the last deficit under a repub congress was $160B/year and the trend was downwards.
The deficit jumped to $460B when the Dems took Congress (and Bush was still president).
Speaking of Medicare Part D, care to name three congressional Dems who objected to it on the basis that it cost too much? It's easy to find those who objected because it cover more, that is, cost more.
And, wrt Homeland Security, feel free to identify Dems who want to spend less on it. The vote on unionization will help you identify those who wanted to spend more.
> You can argue the stimulus but that spending was all temporary and is gone by next year.
Obama and the CBO disagree. They both project >$1T/year deficits for the forseeable future. (They disagree on how much over $1T.)
> The healthcare bill reduced gov't healthcare spending
Umm, no. The claim was the overall cost of healthcare would go down, but that govt spending would go up, being paid for by additional taxes and $500B in medicare "savings". (The scoring "worked" because the taxes started before the benefits.)
The medicare "savings" consists of paying doctors less, the "doc fix". That's been on the plate several times, but each time Congress has pulled back because doctors have said that they won't accept medicare patients if they're paid less.
> The ideological split is mostly the result ... and the complete illegitimacy of any Democratic president in the eyes of about 50% of Republicans.
Ah yes, no Dems ever questioned BushMcChimpHitler's legitimacy or were at all ideological about him.
With all of those repub approved initiatives, the last deficit under a repub congress was $160B/year and the trend was downwards.
The deficit jumped to $460B when the Dems took Congress (and Bush was still president).
Speaking of Medicare Part D, care to name three congressional Dems who objected to it on the basis that it cost too much? It's easy to find those who objected because it cover more, that is, cost more.
And, wrt Homeland Security, feel free to identify Dems who want to spend less on it. The vote on unionization will help you identify those who wanted to spend more.
> You can argue the stimulus but that spending was all temporary and is gone by next year.
Obama and the CBO disagree. They both project >$1T/year deficits for the forseeable future. (They disagree on how much over $1T.)
> The healthcare bill reduced gov't healthcare spending
Umm, no. The claim was the overall cost of healthcare would go down, but that govt spending would go up, being paid for by additional taxes and $500B in medicare "savings". (The scoring "worked" because the taxes started before the benefits.)
The medicare "savings" consists of paying doctors less, the "doc fix". That's been on the plate several times, but each time Congress has pulled back because doctors have said that they won't accept medicare patients if they're paid less.
> The ideological split is mostly the result ... and the complete illegitimacy of any Democratic president in the eyes of about 50% of Republicans.
Ah yes, no Dems ever questioned BushMcChimpHitler's legitimacy or were at all ideological about him.
This kind of silly tribalism is the exact reason that nobody can get anything done. You're now saying ignore the votes, pay attention to how they talk about the votes? A bunch of points about actual actions, and you're so invested in being a Republican that you change the subject to how they talked about the actions?
Are you sure you're not being played for a sucker?
Yes, Democrats were more offended by the gross inefficiency of Medicare Part D than by the general idea of Medicare as a program. They voted against Part D. Republicans voted for it.
Having a projected deficit next year is hilariously orthogonal to the undisputed fact that stimulus spending ends this year.
And the point about Democrats questioning Bush's legitimacy is a great one. Here's someone who actually was arguably illegitimate for his first term, and what did Democratic officeholders and commentators do? Fall over themselves to disassociate themselves from the crazy hippies, and proclaim that we as a country need to move forward. There was no Democratic tea party, and frankly if the Republican tea party is honest about their concern with deficits, where were they prior to January 2009?
Are you sure you're not being played for a sucker?
Yes, Democrats were more offended by the gross inefficiency of Medicare Part D than by the general idea of Medicare as a program. They voted against Part D. Republicans voted for it.
Having a projected deficit next year is hilariously orthogonal to the undisputed fact that stimulus spending ends this year.
And the point about Democrats questioning Bush's legitimacy is a great one. Here's someone who actually was arguably illegitimate for his first term, and what did Democratic officeholders and commentators do? Fall over themselves to disassociate themselves from the crazy hippies, and proclaim that we as a country need to move forward. There was no Democratic tea party, and frankly if the Republican tea party is honest about their concern with deficits, where were they prior to January 2009?
> You're now saying ignore the votes, pay attention to how they talk about the votes?
We agree that Medicare part D is bad. You claim that the fact that Repubs supported it and Dems didn't implies that Dems would have done better if they'd had their way. One problem with that argument is that it assumes that all alternatives are better. That's clearly false.
That's why I said that we should look at what the Dems wanted instead of Bush's Medicare Part D. What they wanted was 40% more expensive, so if you think that Bush's Medicare Part D is bad because of the cost ....
> Having a projected deficit next year is hilariously orthogonal to the undisputed fact that stimulus spending ends this year.
As I've pointed out, almost everyone else thinks that next year's deficit, post-stimulus, will be over $1T and that the same is true the year after and for the forseeable future under current law. (There's some disagreement over whether the trend is $1.2T or $1.5T.)
If you're correct, why isn't Obama shouting your number?
We agree that Medicare part D is bad. You claim that the fact that Repubs supported it and Dems didn't implies that Dems would have done better if they'd had their way. One problem with that argument is that it assumes that all alternatives are better. That's clearly false.
That's why I said that we should look at what the Dems wanted instead of Bush's Medicare Part D. What they wanted was 40% more expensive, so if you think that Bush's Medicare Part D is bad because of the cost ....
> Having a projected deficit next year is hilariously orthogonal to the undisputed fact that stimulus spending ends this year.
As I've pointed out, almost everyone else thinks that next year's deficit, post-stimulus, will be over $1T and that the same is true the year after and for the forseeable future under current law. (There's some disagreement over whether the trend is $1.2T or $1.5T.)
If you're correct, why isn't Obama shouting your number?
1) Medicare Part D managed to spend a boatload of money while providing an absurdly small amount of care, most of it going straight to drug companies. I'm sure you could do worse if you actively tried, but you'd really have to try pretty hard.
2) And, the stimulus isn't contributing to that deficit, hence the comment about it being "hilariously orthogonal". It was also 1/3 tax cuts if you don't remember. Anyways, medicare Part D, the war in Iraq, the Bush tax cuts, and the near-doubling of military spending are contributing to that deficit, as well as tax base shrinkage due to recession. If we're counting relative to the last time we ran a surplus.
2) And, the stimulus isn't contributing to that deficit, hence the comment about it being "hilariously orthogonal". It was also 1/3 tax cuts if you don't remember. Anyways, medicare Part D, the war in Iraq, the Bush tax cuts, and the near-doubling of military spending are contributing to that deficit, as well as tax base shrinkage due to recession. If we're counting relative to the last time we ran a surplus.
> Medicare Part D managed to spend a boatload of money while providing an absurdly small amount of care, most of it going straight to drug companies.
As I said, we agree that it's bad. You've yet to establish that the Dem's proposal, which was more expensive, was better.
> And, the stimulus isn't contributing to that deficit, hence the comment about it being "hilariously orthogonal".
You're the only one talking about the stimulus. I've pointed out that the post-stimulus deficit is >$1T, while the pre-Obama deficit was $460 and the last Repub Congress deficit was $160B, both with the bush tax cuts and more war spending and the recession hadn't kicked in then.
The "out years" projections assume no recession.
As I said, we agree that it's bad. You've yet to establish that the Dem's proposal, which was more expensive, was better.
> And, the stimulus isn't contributing to that deficit, hence the comment about it being "hilariously orthogonal".
You're the only one talking about the stimulus. I've pointed out that the post-stimulus deficit is >$1T, while the pre-Obama deficit was $460 and the last Repub Congress deficit was $160B, both with the bush tax cuts and more war spending and the recession hadn't kicked in then.
The "out years" projections assume no recession.
Bush owned the first > 1 trillion dollar deficit, that budget was passed while he was still president. If we're doing stupid technicalities.
But again, that's silly partisan point scoring and totally beside the point. Pulling one-sided stats with a total lack of intellectual honesty in order to try and claim my side's better.
You're actually arguing here, "but if we cherry pick from the peak of the housing bubble, my side looks great! Just don't look at the following year".
I don't blindly cheer for democrats like they're a football team, I try to objectively evaluate what's going on. If more republican football fans did the same, we might actually have a deficit reduction deal, or a plan to help the jobs situation.
As it is, this is the GOP plan: http://www.theonion.com/articles/new-gop-strategy-involves-r...
But again, that's silly partisan point scoring and totally beside the point. Pulling one-sided stats with a total lack of intellectual honesty in order to try and claim my side's better.
You're actually arguing here, "but if we cherry pick from the peak of the housing bubble, my side looks great! Just don't look at the following year".
I don't blindly cheer for democrats like they're a football team, I try to objectively evaluate what's going on. If more republican football fans did the same, we might actually have a deficit reduction deal, or a plan to help the jobs situation.
As it is, this is the GOP plan: http://www.theonion.com/articles/new-gop-strategy-involves-r...
> Bush owned the first > 1 trillion dollar deficit, that budget was passed while he was still president.
Yup, and Obama has gone deeper.
I'm not claiming that Bush was good - I've said that he's bad. I'm pointing out that Obama and the Dems have been worse.
> If we're doing stupid technicalities.
One "stupid technicality" is that the Obama and the Dems haven't been all that interested in passing budgets.
That's why I talk about spending.
> but if we cherry pick from the peak of the housing bubble, my side looks great! Just don't look at the following year".
You've repeatedly claimed that there will be a huge difference in spending after this year because the stimulus will be over. That makes a comparision with pre-recession reasonable.
Yup, and Obama has gone deeper.
I'm not claiming that Bush was good - I've said that he's bad. I'm pointing out that Obama and the Dems have been worse.
> If we're doing stupid technicalities.
One "stupid technicality" is that the Obama and the Dems haven't been all that interested in passing budgets.
That's why I talk about spending.
> but if we cherry pick from the peak of the housing bubble, my side looks great! Just don't look at the following year".
You've repeatedly claimed that there will be a huge difference in spending after this year because the stimulus will be over. That makes a comparision with pre-recession reasonable.
Oh, now I get it, you're claiming that the current deficits are due to spending by the Obama administration?
Can you point out which spending? I'm under the impression that they're structural deficits created by Bush programs and exacerbated by the recession. But if you could point out some large Obama spending plan that passed, I'd change my mind.
Can you point out which spending? I'm under the impression that they're structural deficits created by Bush programs and exacerbated by the recession. But if you could point out some large Obama spending plan that passed, I'd change my mind.
There's ObamaCare for starters.
This week, we found out that they scored the subsidies based on single people with no kids while the coverage goes to dependents as well, so the subsidies will cost a lot more than predicted.
Every week or so, there's another $100B or so of spending in the bill that we find out about that wasn't scored.
Pelosi was right - we had to pass the bill to know what's in it.
This week, we found out that they scored the subsidies based on single people with no kids while the coverage goes to dependents as well, so the subsidies will cost a lot more than predicted.
Every week or so, there's another $100B or so of spending in the bill that we find out about that wasn't scored.
Pelosi was right - we had to pass the bill to know what's in it.
> And the point about Democrats questioning Bush's legitimacy is a great one. Here's someone who actually was arguably illegitimate for his first term, and what did Democratic officeholders and commentators do?
They, along with the rest of polite society, when some "brave artist" ranted about Bush's assassination.
> if the Republican tea party is honest about their concern with deficits, where were they prior to January 2009?
Actually, a lot of us were screaming about the bush deficits, ,which got a big boost in 2006, when the Dems took congress, something that you completely ignore.
However, as I point out, there is a difference between $160B deficits and $1T deficits.
Sure, you want to blame the economy, but even if that's the only cause, why is it reasonable to keep spending as if times are flush when they clearly aren't?
They, along with the rest of polite society, when some "brave artist" ranted about Bush's assassination.
> if the Republican tea party is honest about their concern with deficits, where were they prior to January 2009?
Actually, a lot of us were screaming about the bush deficits, ,which got a big boost in 2006, when the Dems took congress, something that you completely ignore.
However, as I point out, there is a difference between $160B deficits and $1T deficits.
Sure, you want to blame the economy, but even if that's the only cause, why is it reasonable to keep spending as if times are flush when they clearly aren't?
I think the point he is trying to make is that where were the Dems when these charges were run up, and I agree with the point. Why are we suddenly hitting the debt ceiling? Does noone in Washington have a calculator?
In the opposition? With a minority of votes, voting against this stuff? That's not good enough?
We aren't suddenly hitting the debt ceiling, we've been hitting it every year or two like clockwork for decades. It was raised over a dozen times during the Reagan administration, for example. Suddenly?
We aren't suddenly hitting the debt ceiling, we've been hitting it every year or two like clockwork for decades. It was raised over a dozen times during the Reagan administration, for example. Suddenly?
You won't find any Democrats using the phrase "Big Government" because it's a loaded, derogatory phrase. Nonetheless, the Democratic platform is generally in favor of spending on social services, like welfare, unemployment benefits, Social Security, and education, as well as generally favoring higher amounts of regulation for businesses and industries. Some of these positions are relative: keep the same amount of environmental regulations instead of reducing them, or cut education but by a smaller amount than oil subsidies. Some of them are contingent on the economic climate: avoiding cuts instead of increasing spending. But in general, yes, the Democrats do envision a larger government role in society (excepting defense/security) than Republicans do. They just don't come out and say so because that would be politically disadvantageous.
But in general, yes, the Democrats do envision a larger
government role in society (excepting defense/security)
than Republicans do.
I'll never understand how some people can be discussing the size of size of government and then essentially ignore military spending (of which much has little to do with defense or security) and governmental abuses of power for the sake of security theater.
NPR? Big government.
PBS? Big government.
Rendition and torture? Not so much. Belongs in a parenthetical.
Can you find me a recording of any Democratic officeholder saying they're "for Big Government"?
The ideological split is not between Democrats and Republicans. They are wings of the Washington, D.C. Nationalist Party. The Democrats are the emotionalist wing, the Republicans are the rationalist wing, but the motto of both wings is "We're from Washington, and we're here to help!"
1999 wasn't that long ago. We had a surplus.
Funded by a bubble.
The ideological split is mostly the result of opportunism by Tea Party commentators/legislators ...
The Tea Party is one public face of the decentralist sentiment that opposes the Washington, D.C. Nationalist Party. By their very nature decentralists do not organize national movements like the Tea Party until the situation is completely out of hand (as with the Regan Revolution). They give the centralists a real thrashing, spend a few years chainsawing the worst crap out of the government, then go back home. The centralists then start rebuilding power for the next showdown in another 30 years.
The ideological split is not between Democrats and Republicans. They are wings of the Washington, D.C. Nationalist Party. The Democrats are the emotionalist wing, the Republicans are the rationalist wing, but the motto of both wings is "We're from Washington, and we're here to help!"
1999 wasn't that long ago. We had a surplus.
Funded by a bubble.
The ideological split is mostly the result of opportunism by Tea Party commentators/legislators ...
The Tea Party is one public face of the decentralist sentiment that opposes the Washington, D.C. Nationalist Party. By their very nature decentralists do not organize national movements like the Tea Party until the situation is completely out of hand (as with the Regan Revolution). They give the centralists a real thrashing, spend a few years chainsawing the worst crap out of the government, then go back home. The centralists then start rebuilding power for the next showdown in another 30 years.
I don't know, but I think that you are reading far too much into each party's alleged ideological stances. As far as I can tell, both modern political parties seem to agree that spending is the best way to go about governing.
Yes, I know that one party talks about cuts a lot and the other party talks about spending a lot, but what do they actually do?
Wars? Wars are expensive. Entitlements? Well, entitlement spending is also quite expensive. Neither party will be the first one to threaten social security. Neither party will be the one to threaten medicare. Sure, there will be lots of hand-waving and other forms of gesticulation, but no elected politician in their right mind will take a hatchet to the programs that benefit America's senior citizens. It's just not good politics in a nation with a rapid electoral cycle. (Who votes? Answer that question and you can usually go from there.)
Ideologies - they don't matter. Grandiose claims of some great idealogical divide are wonderful to hear (and great for motivating the base), but what is actually done in practice? Well, the answer is whatever gets you re-elected. Which tends to be lots of sound and lots of fury but very little in the way of action.
Yes, I know that one party talks about cuts a lot and the other party talks about spending a lot, but what do they actually do?
Wars? Wars are expensive. Entitlements? Well, entitlement spending is also quite expensive. Neither party will be the first one to threaten social security. Neither party will be the one to threaten medicare. Sure, there will be lots of hand-waving and other forms of gesticulation, but no elected politician in their right mind will take a hatchet to the programs that benefit America's senior citizens. It's just not good politics in a nation with a rapid electoral cycle. (Who votes? Answer that question and you can usually go from there.)
Ideologies - they don't matter. Grandiose claims of some great idealogical divide are wonderful to hear (and great for motivating the base), but what is actually done in practice? Well, the answer is whatever gets you re-elected. Which tends to be lots of sound and lots of fury but very little in the way of action.
In genereal, I agree with what you have written. However, it seems the OP's debate, and most of others, overlook an adjacent idea that used to be one of the more serious disputes of our country. That is: The debate over Federal vs. State governments, and which entity should be concerned with which issue(s).
I would prefer that states that want more government involvement implement that at the state level. The states could then better compete as more people (and companies) would move to the states where they agreed more fully with the rest of the population.
If one looks at the US Constitution, it appears (IMO) most concerns were originally and explicitly intended to be left to the states, and reading Jefferson's writings it appears even more so. This has the added benefit that we can probably bring more transparency and accountability to state legislators because of the smaller network size.
I would prefer that states that want more government involvement implement that at the state level. The states could then better compete as more people (and companies) would move to the states where they agreed more fully with the rest of the population.
If one looks at the US Constitution, it appears (IMO) most concerns were originally and explicitly intended to be left to the states, and reading Jefferson's writings it appears even more so. This has the added benefit that we can probably bring more transparency and accountability to state legislators because of the smaller network size.
I don't recognize your description of the political landscape. Republicans don't do any more to shrink government than Democrats do to expand it. This has never been true. They do have different priorities. Republicans think the government should be like your father who protects good citizens from harm by fighting bad citizens and foreign threats. Democrats think the government should be like your mother who nurtures and cares for all of its citizens.
As science and economics are showing us a mixture of father and mother turns out to work best, the political differences between Republicans and Democrats are shrinking every year. As a consequence, the parties feel it is necessary to distantiate themselves more and especially the Republicans have spent several decades creating a vast narrative around where their priorities lie. Unfortunately, this has led to big changes in voter's habbits and ideological perspectives.
Wealthy opportunists have helped promote and taken advantage of the narrative to push an agenda of lower taxes for the rich in return for lavish campaign funding. A group of people bought into the narrative too deeply and now think that the myths about taxes they heared over the years are the hard facts, and that Democrats have misguided beliefs. Supported by the wealthy opportunists, these people have taken control of the Republican party and its policies. This is a corruption that has taken many years to develop, but now runs deeply into the belief systems of voters and the wallets of politicians.
As science and economics are showing us a mixture of father and mother turns out to work best, the political differences between Republicans and Democrats are shrinking every year. As a consequence, the parties feel it is necessary to distantiate themselves more and especially the Republicans have spent several decades creating a vast narrative around where their priorities lie. Unfortunately, this has led to big changes in voter's habbits and ideological perspectives.
Wealthy opportunists have helped promote and taken advantage of the narrative to push an agenda of lower taxes for the rich in return for lavish campaign funding. A group of people bought into the narrative too deeply and now think that the myths about taxes they heared over the years are the hard facts, and that Democrats have misguided beliefs. Supported by the wealthy opportunists, these people have taken control of the Republican party and its policies. This is a corruption that has taken many years to develop, but now runs deeply into the belief systems of voters and the wallets of politicians.
While I agree that there is a fundamental division of ideologies of what precisely the federal government ought to be amongst the American people, I disagree that it is a division between the two parties.
In my opinion, the establishment in Washington consisting of the bureaucracy and life-long politicians is generally pro-government and pro-spending. The Republicans pay a lot of lip service to small government, but it is only the Tea Party types like Ron Paul that actually fight for smaller government.
In my opinion, the establishment in Washington consisting of the bureaucracy and life-long politicians is generally pro-government and pro-spending. The Republicans pay a lot of lip service to small government, but it is only the Tea Party types like Ron Paul that actually fight for smaller government.
Without touching on your main point at all, it's a shame you got downmodded. I gave you my upmod, for what it's worth.
Wow, I can't believe this got modded down.
It's like California, but on a larger scale!
Makes you wonder if the real answer is to split up the US.
Happened plenty of times to other countries over ideology- though each half could stand to lose a lot, seeing as various capabilities and industries are not evenly spread across the nation.
Makes you wonder if the real answer is to split up the US.
Happened plenty of times to other countries over ideology- though each half could stand to lose a lot, seeing as various capabilities and industries are not evenly spread across the nation.
There's a saying that goes, "If you owe the bank $100, that's your problem. If you owe the bank $100 million dollars, that's the bank's problem." (I've seen it attributed to John D. Rockefeller, but certainly other people had the same idea before hime).
s/million/trillion/g, s/bank/China/g and s/you/United States/g and you've got my take on the current situation. Lots of the rest of the world's economy is based on selling things to the United States; it's pretty much China's explicit strategy for growth. If the US goes to everyone in turn and says, "Hey remember that $50 billion I said I'd get you last week? Yeah...I can give you $10 million," there will be a lot of grumbling, and hopefully some restructuring in the long term, but they'll still take the deal. Where else are they going to go?
TL;DR US has a monopsyny on monkey shaped shower curtain rings.
s/million/trillion/g, s/bank/China/g and s/you/United States/g and you've got my take on the current situation. Lots of the rest of the world's economy is based on selling things to the United States; it's pretty much China's explicit strategy for growth. If the US goes to everyone in turn and says, "Hey remember that $50 billion I said I'd get you last week? Yeah...I can give you $10 million," there will be a lot of grumbling, and hopefully some restructuring in the long term, but they'll still take the deal. Where else are they going to go?
TL;DR US has a monopsyny on monkey shaped shower curtain rings.
The US treasury is currently borrowing at the lowest rates in 70 years. To obtain the lowest rates possible, about half of the US debt is in bonds that mature in less than a year. This means huge quantities of bonds are constantly maturing and being resold. Any change in interest rates will quickly result in much higher interest payments.
These rates are so low because the fed is buying the bonds and treasuries are currently the safest place to park huge amounts of cash. The rates even go negative at times because US bonds are are safe place for cash. If the treasury starts defaulting on its debts, that will change very quickly. Not only that but the status of the USD will change very quickly.
These rates are so low because the fed is buying the bonds and treasuries are currently the safest place to park huge amounts of cash. The rates even go negative at times because US bonds are are safe place for cash. If the treasury starts defaulting on its debts, that will change very quickly. Not only that but the status of the USD will change very quickly.
More meaningful if you look at it as a portion of GDP.
http://en.wikipedia.org/wiki/List_of_countries_by_current_ac...
http://en.wikipedia.org/wiki/List_of_countries_by_current_ac...
The current account has very little to do with the US Debt problems.
The current account relates to the balance of trade[1], ie: the amount of good and services purchased from overseas vs sold overseas. The US Debt is money borrowed by the US Goverment[2], which isn't really related to trade directly at all.
There is a Wikipedia article that lists the different types of deficits: http://en.wikipedia.org/wiki/Deficit. The current debate in the US is over deficit budgets, whereas a Trade Deficit is a different problem,
[1] http://en.wikipedia.org/wiki/Balance_of_payments
[2] http://en.wikipedia.org/wiki/United_States_public_debt
The current account relates to the balance of trade[1], ie: the amount of good and services purchased from overseas vs sold overseas. The US Debt is money borrowed by the US Goverment[2], which isn't really related to trade directly at all.
There is a Wikipedia article that lists the different types of deficits: http://en.wikipedia.org/wiki/Deficit. The current debate in the US is over deficit budgets, whereas a Trade Deficit is a different problem,
[1] http://en.wikipedia.org/wiki/Balance_of_payments
[2] http://en.wikipedia.org/wiki/United_States_public_debt
It's natural that different ratings agencies should disagree sometimes. That's why we have different ratings agencies.
In the US, ratings agencies and the bond rating system are a legacy of the New Deal-- the ratings agencies are approved by federal regulators and are protected from real competition.
Contrast that with stocks, where anybody can be an analyst and issue a rating, and where there is no mechanical, legalistic system of downgrades and upgrades.
The feds created the bond ratings agency oligopoly to "protect investors", but I'd argue we'd be better served by true ratings competition and more due diligence by investors.
Contrast that with stocks, where anybody can be an analyst and issue a rating, and where there is no mechanical, legalistic system of downgrades and upgrades.
The feds created the bond ratings agency oligopoly to "protect investors", but I'd argue we'd be better served by true ratings competition and more due diligence by investors.
the ratings agencies are approved by federal regulators and are protected from real competition.
I'm confused. Surely if I decided to set up my own bond rating agency nobody could stop me?
I'm confused. Surely if I decided to set up my own bond rating agency nobody could stop me?
I think that it's a de-facto monopoly in that if you set up your own bond rating agency, nobody would be compelled by law to only invest in things that your rating agency considered "investment grade".
Ah, now I understand, thanks. Anyone can rate bonds, but the ratings issued by the "blessed" agencies have legal significance and mine don't.
That's right. The ratings agencies sit at a critical junction in the American (and global system) so when they fail, or have mixed incentives, the whole system breaks, which is a major part of the story of 2008.
It wasn't always that way. There's a Planet Money podcast covering how the ratings agencies came to be and how thet got their legal significance. Interesting story.
These days it is a bit more complicated. Now just about anyone sensible can become a "blessed" agency, a Nationally Recognized Statistical Rating Organization (NRSRO).
The catch is that the biggest rating agencies accept payments by the company issuing the bond. What happens is that Bank of Insanity gives Moody's a check for $500k to rate their super-senior diseased livestock bond. Moody's then says "at least 5% of the cows will probably survive, and $500k is a lot of money, so this bond is investment grade!"
That's why things work out so poorly.
The catch is that the biggest rating agencies accept payments by the company issuing the bond. What happens is that Bank of Insanity gives Moody's a check for $500k to rate their super-senior diseased livestock bond. Moody's then says "at least 5% of the cows will probably survive, and $500k is a lot of money, so this bond is investment grade!"
That's why things work out so poorly.
http://en.wikipedia.org/wiki/Nationally_recognized_statistic...
Nobody can stop you, but nobody can legally use your ratings in regulatory filings.
Nobody can stop you, but nobody can legally use your ratings in regulatory filings.
Contrast that with stocks, where anybody can be an analyst and issue a rating, and where there is no mechanical, legalistic system of downgrades and upgrades.
I think this statement is a little stronger than is accurate. For a time I was on the career path of a stock analyst, and before my name could be on any notes urging investors to buy or sell, I had to take and pass a number of licensing tests: Series 7, 63, 86, and 87. These tests were mandated and run by FINRA, as ordered by the SEC.
So not just "anybody" can issue a rating.
However, I understand your larger message that there aren't larger legal implications surrounding your rating; other than simple anti- market manipulation type things.
I think this statement is a little stronger than is accurate. For a time I was on the career path of a stock analyst, and before my name could be on any notes urging investors to buy or sell, I had to take and pass a number of licensing tests: Series 7, 63, 86, and 87. These tests were mandated and run by FINRA, as ordered by the SEC.
So not just "anybody" can issue a rating.
However, I understand your larger message that there aren't larger legal implications surrounding your rating; other than simple anti- market manipulation type things.
Bond rating agencies are superfluous when it comes to liquid bonds such as US Treasuries. The only reason their ratings have any impact right now is because of outdated SEC rules related to Nationally Recognized Statistical Rating Organizations.
http://www.sec.gov/answers/nrsro.htm
The market itself is a better judge of future value than any more-or-less arbitrary rating by S&P or one of its competitors.
The bond raters do still add some value by evaluating new issues or thinly traded securities. In those cases the markets don't give us useful information.
The bond raters do still add some value by evaluating new issues or thinly traded securities. In those cases the markets don't give us useful information.
wrong.. just ask Henry Blodget if he can be analyst.. Stock analysts are regulated by the SEC..
You don't understand the legal structures here. Of course there are rules, but there's no competitive barrier to entry to the stock analysis business. There are thousands of companies that provide stock research, but only a handful of official bond ratings companies. And there's an entire legal and regulatory structure around bonds and bond ratings, which does not exist around equities, and which connect bond ratings to the US banking, pension, and insurance systems. Here's a good overview of the debate on ratings agency reform: http://www.sec.gov/rules/concept/33-8236.htm
S&P's position doesn't make any sense. If U.S. defaults what happens to the world economy and every other AAA rated debt? So long as US Treasuries shore up the balance sheet of every government and corporation, a default takes down everything. If the US can't have a AAA, then no one can.
I think it makes perfect sense. We have a debtor who contemplates for weeks whether to default on its obligations. Why on earth would you give such a debtor an AAA (~="absolutely trustworthy", _not_ "as trustworthy as it gets") rating?
I don't think these ratings are intended to still hold true in a global meltdown type scenario.
Your point does show though how ridiculous the current situation is. A country that is up to its eyeballs in debt really should not be the measuring stick.
Your point does show though how ridiculous the current situation is. A country that is up to its eyeballs in debt really should not be the measuring stick.
"I don't think these ratings are intended to still hold true in a global meltdown type scenario."
That was Vlad's point. The US debt is, for the time being, 'too big to fail' in the sense that things like oil is priced in dollars. So almost by definition, the US debt is AAA and everything else is the same or less risky than that. (Talking strictly about soverign debt here, corporate debt is a different kettle of fish)
"Your point does show though how ridiculous the current situation is. A country that is up to its eyeballs in debt really should not be the measuring stick."
This seems to be a common misperception, which is where our 'eyeballs' are, relative to the amount of debt we are carrying as a country. Compared to the GDP and size of the economy, we're not in bad shape at all. Further, even at the anemic growth rates of 2%, if the Government cut nothing, which is to say kept the same budget this year (in terms of dollar expenditure) as they had last year (basically actually made the budgeting process 'net zero' so any new spending was matched by an equivalent cut) the country would be running a surplus in slightly more than 15 years. With 3 trillion in current revenue, 2% growth compounded over 15 years gets us to 4 trillion in annual revenue. Even running a half trillion dollar defict we 'win' by not spending any more. But it does depend on us having the discipline to do that.
That was Vlad's point. The US debt is, for the time being, 'too big to fail' in the sense that things like oil is priced in dollars. So almost by definition, the US debt is AAA and everything else is the same or less risky than that. (Talking strictly about soverign debt here, corporate debt is a different kettle of fish)
"Your point does show though how ridiculous the current situation is. A country that is up to its eyeballs in debt really should not be the measuring stick."
This seems to be a common misperception, which is where our 'eyeballs' are, relative to the amount of debt we are carrying as a country. Compared to the GDP and size of the economy, we're not in bad shape at all. Further, even at the anemic growth rates of 2%, if the Government cut nothing, which is to say kept the same budget this year (in terms of dollar expenditure) as they had last year (basically actually made the budgeting process 'net zero' so any new spending was matched by an equivalent cut) the country would be running a surplus in slightly more than 15 years. With 3 trillion in current revenue, 2% growth compounded over 15 years gets us to 4 trillion in annual revenue. Even running a half trillion dollar defict we 'win' by not spending any more. But it does depend on us having the discipline to do that.
Paying one cent less than is due constitutes a default. This is what people don't seem to understand.
The US defaulting doesn't mean all the bonds disappear. It doesn't mean nobody gets any of their money. It means the US doesn't fully meet its contractual obligations.
Scale this back: You only pay half of your mortgage payment one month. That means you're in default. Does your obligation disappear? No.
Were the US to default, the important questions are "By how much?" and "How long will it take to fix this?". Only once those questions are answered can you begin to answer the question of what other entities' debt ratings should be.
EDIT: Not all bonds would go into default at once, either. The US could pay some in full and not others, and could pick and choose which got paid how much. Country X that only has a limited amount of US debt might get shafted, while country Y that depends heavily on US bonds gets paid in full. What's the actual consequence there? Not much. Country X is mildly inconvenienced, Country Y has no problems.
This is way more complicated than 2+2=4.
The US defaulting doesn't mean all the bonds disappear. It doesn't mean nobody gets any of their money. It means the US doesn't fully meet its contractual obligations.
Scale this back: You only pay half of your mortgage payment one month. That means you're in default. Does your obligation disappear? No.
Were the US to default, the important questions are "By how much?" and "How long will it take to fix this?". Only once those questions are answered can you begin to answer the question of what other entities' debt ratings should be.
EDIT: Not all bonds would go into default at once, either. The US could pay some in full and not others, and could pick and choose which got paid how much. Country X that only has a limited amount of US debt might get shafted, while country Y that depends heavily on US bonds gets paid in full. What's the actual consequence there? Not much. Country X is mildly inconvenienced, Country Y has no problems.
This is way more complicated than 2+2=4.
You make good points, but the comparison to a mortgage payment is not one of them. My missed mortgage payment affects my credit rating, but not the credit rating of the bank who holds my mortgage because they hold thousands of other mortgages. Despite the bank's leverage, my mortgage is still a tiny portion of their balance sheet. I could stop paying altogether and no big deal. Not so with US Treasuries. They are the foundation for basically every conservatively managed balance sheet. It's the old saying: if you owe the bank a million dollars you have a problem. If you owe the bank a billion dollars the bank has a problem. I agree this is way more complicated than 2+2=4, but Standard & Poor's inability to do even basic math (http://uk.reuters.com/article/2011/08/07/uk-usa-rating-sp-wh...) leads me to assume they are incapable of figuring out the network effects of a US default of any kind or degree.
pathetic state of the industry as everybody is still forced to care about output of the [ algorithm + business process it is embedded in ] combo that produced AAA for mortgage bonds junk
If you think you can invent an algorithm that produces a more accurate picture of default risks on various types of assets, then I'm sure the world will beat a path to your door. Until then, this is the best we have.
Whatever about inventing a better algorithm, it's clear that the ratings agencies didn't do any kind of due diligence before slapping AAA ratings on junk mortgage securities...they were afraid of losing business from the investment banks! They should have been the ones telling the banks what was what.
Those in the know would describe the ratings agencies as "brain-dead", the lowest on the totem pole on Wall Street...traders who made money would game the credit ratings scores so S&P and Moods would rate the junk they were peddling AAA. A modern form of alchemy - turning junk into investment gold.
For a nice, easy-to-read account of those who made a fortune from the mortgage market collapse that tells you how exactly the ratings agencies were played for fools: The Big Short, by Michael Lewis (of Liar's Poker fame)
Those in the know would describe the ratings agencies as "brain-dead", the lowest on the totem pole on Wall Street...traders who made money would game the credit ratings scores so S&P and Moods would rate the junk they were peddling AAA. A modern form of alchemy - turning junk into investment gold.
For a nice, easy-to-read account of those who made a fortune from the mortgage market collapse that tells you how exactly the ratings agencies were played for fools: The Big Short, by Michael Lewis (of Liar's Poker fame)
The world has produced such a procedure and beaten a path to its door - it's called the CDS swap markets, and they are extremely active.
This is a silly critique. We all know the weather forecast isn't absolutely 100% accurate, but it's still worth having.
>We all know the weather forecast isn't absolutely 100% accurate
forecasters who forecast "sunny" paid handsomely, while forecasters who forecast "fog" aren't paid at all - what would be accuracy of a given forecast for London from these forecasters?
forecasters who forecast "sunny" paid handsomely, while forecasters who forecast "fog" aren't paid at all - what would be accuracy of a given forecast for London from these forecasters?
Your point is spot-on, except that it really isn't foggy in London much. It's a US misconception that's a hangover from Victorian smog, Jack-the-Ripper movies, and various songs.
More apt would be if the weather forecaster wouldn't be paid for forecasting 'dreary, drab, grey, occasional pathetic rain, etc'. Which would be most of the UK summer...
More apt would be if the weather forecaster wouldn't be paid for forecasting 'dreary, drab, grey, occasional pathetic rain, etc'. Which would be most of the UK summer...
If your conspiracy theory were true, then why would S&P be rating the US Treasury at anything other than AAA?
>If your conspiracy theory were true, then why would S&P be rating the US Treasury at anything other than AAA?
do you really think that the US Treasury buys the rating like mortgage bond junk issuers?
http://en.wikipedia.org/wiki/Bond_credit_rating#Criticism
"Starting in the early 1970s, the "Big Three" ratings agencies (S&P, Moody's, and Fitch) began to receive payment for their work by the securities issuers for whom they issue those ratings, which has led to charges that these ratings agencies can no longer always be impartial when issuing ratings for those securities issuers."
do you really think that the US Treasury buys the rating like mortgage bond junk issuers?
http://en.wikipedia.org/wiki/Bond_credit_rating#Criticism
"Starting in the early 1970s, the "Big Three" ratings agencies (S&P, Moody's, and Fitch) began to receive payment for their work by the securities issuers for whom they issue those ratings, which has led to charges that these ratings agencies can no longer always be impartial when issuing ratings for those securities issuers."
http://fivethirtyeight.blogs.nytimes.com/2011/08/08/why-s-p-...
Over the last 15 years or so, you could have made a lot of money with an investment strategy of "bet against S&P".
Over the last 15 years or so, you could have made a lot of money with an investment strategy of "bet against S&P".
But how much do you trust it?
Coming from the east coast I trust the forecast less than just looking out the window. It's just too inaccurate.
When you look out the window and see that the US is still the healthiest big developed economy out there, what do you do? Do you trust your own eyes or the ratings agency?
Coming from the east coast I trust the forecast less than just looking out the window. It's just too inaccurate.
When you look out the window and see that the US is still the healthiest big developed economy out there, what do you do? Do you trust your own eyes or the ratings agency?
If that weather forecast said it was going to be sunny and warm, you'd be pretty pissed to encounter hailstorms and hurricanes when you arrived at the beach. Similarly, you might not trust it so much when the weatherman was bleating about thunderstorms while all you can see are high clouds and blue sky.
First the impact of a false prediction on a weather forecast is not as dangerous as that of a false prediction in default rates, second, even an erroneous weather forecast isn't too far from the observed weather.
Srsly. I cannot fathom how these people are still in charge of our future.
There is one reason why the US cannot go bankrupt .... it can just print more money to pay the debts. This is very different to Greece which does not control it's own currency. This is one reason why Euro states are more under threat than the US.
Also Japan has far higher debt levels than the US, and it has an significantly more aging population, negative growth in population and is in more trouble than the US. However Japan is currently a safe haven from the US? Who decided that Japan is a safe haven? If the Japanese government had to pay much higher interest rates it would be in a lot of trouble, but at least it too can print it's own money.
Also Japan has far higher debt levels than the US, and it has an significantly more aging population, negative growth in population and is in more trouble than the US. However Japan is currently a safe haven from the US? Who decided that Japan is a safe haven? If the Japanese government had to pay much higher interest rates it would be in a lot of trouble, but at least it too can print it's own money.
This sounds a bit suspicious:
"The United States has unmatched access to financing, meaning that the U.S. government can support higher debt levels than other governments."
"We think it's safe to lend them money, because they can borrow lots of money."
"The United States has unmatched access to financing, meaning that the U.S. government can support higher debt levels than other governments."
"We think it's safe to lend them money, because they can borrow lots of money."
It bums me out that a single press release can cause so much of the world's wealth to evaporate. Worldwide capital was something like $80T iirc, 2% of that would have solved every budget crisis in the world.
The downgrade didn't cause this. At least, you need a rather complicated model to explain how it did. Interest rates fell on US Treasury bonds; this means investors think they're the safest instrument to invest in. Today we saw equities crumble, not bonds.
I would guess it's mostly the evolving European situation that's throwing us headlong into the abyss, with a hefty serving of realizing the USA is run by clowns who are utterly incapable of addressing any important problems. Note that this is beyond simple "politicians are teh stupid," which applies in any country, but in the USA particularly. Europe's facing serious problems, but that's because they're burdened with very tough choices as a result of badly thought out institutions from the 1990s. The USA faces very easy choices, but we're facing serious problems because... well, we want to? Because we have a dysfunctional government? Who knows. Regardless, it's an unforced error.
I would guess it's mostly the evolving European situation that's throwing us headlong into the abyss, with a hefty serving of realizing the USA is run by clowns who are utterly incapable of addressing any important problems. Note that this is beyond simple "politicians are teh stupid," which applies in any country, but in the USA particularly. Europe's facing serious problems, but that's because they're burdened with very tough choices as a result of badly thought out institutions from the 1990s. The USA faces very easy choices, but we're facing serious problems because... well, we want to? Because we have a dysfunctional government? Who knows. Regardless, it's an unforced error.
Its worth noting that some investors are thinking this is a liquidity event because someone got a margin call rather than concern about euro economic concerns. I'd think its both. But yeah, u.s. bonds are doing fine despite the downgrade.
http://brontecapital.blogspot.com/2011/08/who-has-got-margin...
http://brontecapital.blogspot.com/2011/08/who-has-got-margin...
Evaporate? When you buy a stock for $10, that is the moment when your $10 are gone -- not the minute it plummets. If you can sell it later for $15, congrats, that is the moment where you can realize a profitable "exit". But in the meantime -- every second of it -- don't ever count on that stock, bond or other 'vehicle' to "hold your $10 through the winds of change" or protect it against changes in the perceptions and opinions of all the other gamblers, investors, savers, market participants around the globe. Any given day, its "ticker value" merely reflects the value judgments of the relatively small number of co-owners that happen to buy or sell the same asset that day -- it never reflects "your net wealth". Your net wealth is your cash, house, car, brain, any other physical asset -- minus any money you spent on counter-party future obligations, promises, thoughts, hopes -- speculation. That stock you bought? It can be $1 or $100 tomorrow or in 10 years, and you only ever know it when it's time to sell.
Was money lost? Sure -- but not last week or today -- rather, on the day the individual investor bought into these markets.
Anecdotically, I made a few nice profits with Bitcoins back in May/June when they were all the rage -- but I never ever confused them with physical wealth, I knew the nature of my gamble and I timed my exit -- not perfectly, but good enough to convert this "digital profit" or "paper profit" back into "physical goods". I'm not a full-time trader or gambler and I believe in investing my time more productively, but at the same time, sometimes it's fun to play money games. Too bad so many people on a world-wide scale believe it's a smart idea for their retirement estate to "take on debt to 'invest' in others' debts". This has been going on for a long time but it's not especially sustainable or otherwise inspiring -- especially since the debts are now backed by the children of your children. Think I'm off-topic by now? Think again!
Was money lost? Sure -- but not last week or today -- rather, on the day the individual investor bought into these markets.
Anecdotically, I made a few nice profits with Bitcoins back in May/June when they were all the rage -- but I never ever confused them with physical wealth, I knew the nature of my gamble and I timed my exit -- not perfectly, but good enough to convert this "digital profit" or "paper profit" back into "physical goods". I'm not a full-time trader or gambler and I believe in investing my time more productively, but at the same time, sometimes it's fun to play money games. Too bad so many people on a world-wide scale believe it's a smart idea for their retirement estate to "take on debt to 'invest' in others' debts". This has been going on for a long time but it's not especially sustainable or otherwise inspiring -- especially since the debts are now backed by the children of your children. Think I'm off-topic by now? Think again!
You do realize that cash is not a true physical asset, right? You can hold it in your hand, but it has no intrinsic value. The only value it holds that that which others assign to it, not unlike a share of stock.
Good thoughts -- I did and do realize it, in fact! Some price stocks in currency, some value currency in stocks. Some price oil in currency, some "currency" in "oil". Some price gold in currency, others value currency in how much gold it buys (oil producers, for example!)
That said, by "physical wealth" indeed I didn't really mean paper currency or receipts for commerce and I mentioned this mistakenly to "soften my message" for those purely and fully entangled in the paper world of yesteryear.
That said, by "physical wealth" indeed I didn't really mean paper currency or receipts for commerce and I mentioned this mistakenly to "soften my message" for those purely and fully entangled in the paper world of yesteryear.
My point is that you're talking about investments as if they are instantly gone and that this is some special case. "Was money lost? Sure -- but not last week or today -- rather, on the day the individual investor bought into these markets." This is incorrect, or at least it's not very meaningful. There's nothing special about stocks that make wealth disappear instantly. If your wealth is gone the second you invest in stocks, then it's also gone the instant you purchase oil futures, buy dollars/euros/your-favorite-currency, purchase gold, put it in the bank, or pretty much anything else. Any asset you obtain today really has only the value that someone else will assign to it when you wish to unload the asset at some point in the future.
"If your wealth is gone the second you invest in stocks, then it's also gone the instant you purchase oil futures, buy dollars/euros/your-favorite-currency, put it in the bank, or pretty much anything else."
Agreed!
"purchase gold, " -- disagree:
You're right on all counts but you're simply expressing my point more "extremely" than even I did myself... certainly, every trade of physical or digital goods is a subjective value judgment of both parties involved. In fact, stocks are a lot more "solid" as an "investment" in my book than pure debt and bonds and "financial vehicles" etc. But then, another question is how many of "working peoples' savings" should be entrusted to the ever-swinging daily judgments of full-time traders and speculators, 'wealth advisors', 'funds and trusts' that always chase yesterday's bubble and collect their commissions one way or the other. If capital goes into real estate, surely enough new condos spring up in Florida and Bangkok. If capital chases dot.coms, new dot.coms get created left and right. Tulips can be grown at will, too! Certainly, paper wealth can be multiplied indefinitely in nominal terms, but not in "real terms". The question then is, what are "real" terms? Well what happens when capital, tired of all the bubbles, runs into Bitcoins? They cannot be duplicated easily but boy can they be hacked. Bonds? Safe to bondage the tax-payers of 2030, today, is it? Ultimately, savings and holdings that are not "for-play money" will have to return to seeking protection in stuff that cannot be hacked by smart script kids or replicated and duplicated at will or by 'economic emergency laws' -- savings will at some point no longer be entrusted to better-dressed Madoffs -- they will have to seek assets with a long history book of storing wealth generated by productive past work well into the future for reference. That could be Mona Lisas but there's only one of them. Or that could be any other tangible, non-hackable, fungible, liquid physical good that has no competing industrial use, most importantly cannot be produced or increased in quantity at will and has been valued consistently by the kings and millions of "normal people" around the world for millenia well into the present. Sure, the "currency prices" of such assets may well fluctuate but the mere storage of savings function might well out-perform today's vehicles and instruments over the long term. Plus, as you already noted, currency does not reflect "intrinsic" value either so these nominal fluctuations are a laughing matter at best :)
But wait, couldn't this be said of stocks either? Exactly! Long-term savers will know this and not panic much. But those who talk about "wealth that evaporated" -- they were likely trading and speculating for a paper profit next week or month, not for "value-investing" or "storing savings". So both you and me shrug at them and say, "look again, no real wealth did evaporate! No factory collapsed, no car or house mysteriously disappeared..."
Agreed!
"purchase gold, " -- disagree:
You're right on all counts but you're simply expressing my point more "extremely" than even I did myself... certainly, every trade of physical or digital goods is a subjective value judgment of both parties involved. In fact, stocks are a lot more "solid" as an "investment" in my book than pure debt and bonds and "financial vehicles" etc. But then, another question is how many of "working peoples' savings" should be entrusted to the ever-swinging daily judgments of full-time traders and speculators, 'wealth advisors', 'funds and trusts' that always chase yesterday's bubble and collect their commissions one way or the other. If capital goes into real estate, surely enough new condos spring up in Florida and Bangkok. If capital chases dot.coms, new dot.coms get created left and right. Tulips can be grown at will, too! Certainly, paper wealth can be multiplied indefinitely in nominal terms, but not in "real terms". The question then is, what are "real" terms? Well what happens when capital, tired of all the bubbles, runs into Bitcoins? They cannot be duplicated easily but boy can they be hacked. Bonds? Safe to bondage the tax-payers of 2030, today, is it? Ultimately, savings and holdings that are not "for-play money" will have to return to seeking protection in stuff that cannot be hacked by smart script kids or replicated and duplicated at will or by 'economic emergency laws' -- savings will at some point no longer be entrusted to better-dressed Madoffs -- they will have to seek assets with a long history book of storing wealth generated by productive past work well into the future for reference. That could be Mona Lisas but there's only one of them. Or that could be any other tangible, non-hackable, fungible, liquid physical good that has no competing industrial use, most importantly cannot be produced or increased in quantity at will and has been valued consistently by the kings and millions of "normal people" around the world for millenia well into the present. Sure, the "currency prices" of such assets may well fluctuate but the mere storage of savings function might well out-perform today's vehicles and instruments over the long term. Plus, as you already noted, currency does not reflect "intrinsic" value either so these nominal fluctuations are a laughing matter at best :)
But wait, couldn't this be said of stocks either? Exactly! Long-term savers will know this and not panic much. But those who talk about "wealth that evaporated" -- they were likely trading and speculating for a paper profit next week or month, not for "value-investing" or "storing savings". So both you and me shrug at them and say, "look again, no real wealth did evaporate! No factory collapsed, no car or house mysteriously disappeared..."
> "purchase gold, " -- disagree:
Do you believe that gold has tripled its intrinsic value over the past 5 years? Or that virtually all other assets have lost 2/3 of their intrinsic value during that same time frame? Gold has very little intrinsic value (to my mind, at least), especially before the electronics revolution, and it is as subject to the whims of investors as any other asset. If you buy gold at $1700 today and it drops back to $500 in five years, you'll see the same loss as if you bought $1700 of Google and it dropped to $500. While I agree that gold cannot be multiplied indefinitely, the same applies to many (indeed most) other assets. The price of homes has no fixed limit, but neither does the price of gold. This is especially true when the market sells gold futures and such that are not necessarily backed by physical gold.
> But wait, couldn't this be said of stocks either? Exactly! Long-term savers will know this and not panic much. But those who talk about "wealth that evaporated" -- they were likely trading and speculating for a paper profit next week or month, not for "value-investing" or "storing savings". So both you and me shrug at them and say, "look again, no real wealth did evaporate! No factory collapsed, no car or house mysteriously disappeared..."
On this part, I agree. True wealth doesn't evaporate when the market drops. (That's not to say that a drop in the market can't hurt long-term wealth production; i.e. economic growth vs recession.) As you said, houses didn't fall down. Nothing changed except some paper values.
But then, anyone who understands how markets work should understand that wealth is not truly created or destroyed by trading in the markets. It's just exchanges of wealth. If you've got a share of stock and sell it to me for $100, the same wealth exists after the trade. If I turn around and sell that stock to someone else for $50, the same wealth still exists. The paper value of that stock might change, but no actual dollars disappeared as a result of the transactions. I lost money, but the economy did not. (I do believe that stock and commodities exchanges can themselves be real wealth, though, in the same way a village market is wealth.)
Do you believe that gold has tripled its intrinsic value over the past 5 years? Or that virtually all other assets have lost 2/3 of their intrinsic value during that same time frame? Gold has very little intrinsic value (to my mind, at least), especially before the electronics revolution, and it is as subject to the whims of investors as any other asset. If you buy gold at $1700 today and it drops back to $500 in five years, you'll see the same loss as if you bought $1700 of Google and it dropped to $500. While I agree that gold cannot be multiplied indefinitely, the same applies to many (indeed most) other assets. The price of homes has no fixed limit, but neither does the price of gold. This is especially true when the market sells gold futures and such that are not necessarily backed by physical gold.
> But wait, couldn't this be said of stocks either? Exactly! Long-term savers will know this and not panic much. But those who talk about "wealth that evaporated" -- they were likely trading and speculating for a paper profit next week or month, not for "value-investing" or "storing savings". So both you and me shrug at them and say, "look again, no real wealth did evaporate! No factory collapsed, no car or house mysteriously disappeared..."
On this part, I agree. True wealth doesn't evaporate when the market drops. (That's not to say that a drop in the market can't hurt long-term wealth production; i.e. economic growth vs recession.) As you said, houses didn't fall down. Nothing changed except some paper values.
But then, anyone who understands how markets work should understand that wealth is not truly created or destroyed by trading in the markets. It's just exchanges of wealth. If you've got a share of stock and sell it to me for $100, the same wealth exists after the trade. If I turn around and sell that stock to someone else for $50, the same wealth still exists. The paper value of that stock might change, but no actual dollars disappeared as a result of the transactions. I lost money, but the economy did not. (I do believe that stock and commodities exchanges can themselves be real wealth, though, in the same way a village market is wealth.)
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It wasn't a single press release, but an "official" recognition that the U.S. is hurtling along on an unsustainable budgetary path. We're borrowing more money each year than we spent as the ENTIRE federal budget each year in the 1990s.
Also, in many ways, Europe and Japan are in even worse shape, and the recent sell-off is probably more driven by European events.
Also, in many ways, Europe and Japan are in even worse shape, and the recent sell-off is probably more driven by European events.
If you read S&P's actual paper, it focuses on political dysfunction, not economic. For instance, they said that if the Bush tax cuts for people making 250k/year were allowed to expire, then they would have allowed the USA to retain its AAA rating, but the American political system seems incapable of making the necessary revenue adjustments to attain fiscal consolidation.
Of course, S&P is really just a bunch of corrupt idiots, so either way you shouldn't pay much attention to them.
Of course, S&P is really just a bunch of corrupt idiots, so either way you shouldn't pay much attention to them.
The political dysfunction is only interesting to them inasmuch as it produces economic dysfunction. If Congress was deadlocked for months on end on, say, Don't Ask Don't Tell legislation, the thought of downgrading the US's debt rating would never have crossed their mind.
Slightly increasing revenue in an environment where increasing revenue is simply seen as a reason to spend 117% of the revenue increase won't prevent debt downgrades.http://online.wsj.com/article/SB1000142405274870464860457562...
It's not a revenue problem, it's a spending-more-than-we-have-revenue problem. And I don't mean that it must be fixed with cuts only, but the idea that we can tax our way out of this problem is basically purely theoretical. With the real politicians we have, it won't work, unless after we fix the root spending problem.
Slightly increasing revenue in an environment where increasing revenue is simply seen as a reason to spend 117% of the revenue increase won't prevent debt downgrades.http://online.wsj.com/article/SB1000142405274870464860457562...
It's not a revenue problem, it's a spending-more-than-we-have-revenue problem. And I don't mean that it must be fixed with cuts only, but the idea that we can tax our way out of this problem is basically purely theoretical. With the real politicians we have, it won't work, unless after we fix the root spending problem.
Take everything Stephen Moore says with a giant grain of salt. He has some, er, very hackish tendencies, especially when veering away from research and trying to give a pretty finish to right wing policies on the WSJ op-ed page.
it's a spending-more-than-we-have-revenue problem
Which can be fixed either by increasing revenue or decreasing spending.
Raising taxes increases revenue. Pair Clinton-era tax rates with some very modest reforms to Social Security and some much more significant ones to Medicare, and we'd honestly be sitting pretty well.
And even if we did nothing, even now the biggest economic issue by far is jobs, not projected deficits in 2040.
Edited: upvoted you, because I can't conceive of why others should have downvoted you...
it's a spending-more-than-we-have-revenue problem
Which can be fixed either by increasing revenue or decreasing spending.
Raising taxes increases revenue. Pair Clinton-era tax rates with some very modest reforms to Social Security and some much more significant ones to Medicare, and we'd honestly be sitting pretty well.
And even if we did nothing, even now the biggest economic issue by far is jobs, not projected deficits in 2040.
Edited: upvoted you, because I can't conceive of why others should have downvoted you...
"Which can be fixed either by increasing revenue or decreasing spending."
That's actually not quite true. A truer statement would be that for a given constant level of spending deficit, it can be closed by either increasing revenue or decreasing spending. But you can't assume a constant level of deficit, because time progresses and politicians adjust based on their income and outflows. (Not necessarily in a good way, but they are looking.)
Try to put yourself more in a physics frame of mind than a political one. It's the difference between statics and dynamics. Solving the budget problem with a static snapshot of a dynamic process isn't going to work. With the track record that our politicians have, just handing them more money isn't going to solve the problem if they're just going to spend even more of it. A static-forces model of the political appropriations process fails to predict reality, the model where politicians dynamically increase their spending even more than revenue does historically fares better.
(... yes, I know it is odd to approach politics from the point of view of building models to predict reality and seeing which ones successfully, no sarcasm at all, I see hardly anyone take this approach. But there are in fact enough hard facts out there to have some success with this approach, if you can learn to take your science-trained sensibilities and look at the political world. Political science need not be an oxymoron, though I suspect an actual study of political science wouldn't look much like what is currently called that.)
That's actually not quite true. A truer statement would be that for a given constant level of spending deficit, it can be closed by either increasing revenue or decreasing spending. But you can't assume a constant level of deficit, because time progresses and politicians adjust based on their income and outflows. (Not necessarily in a good way, but they are looking.)
Try to put yourself more in a physics frame of mind than a political one. It's the difference between statics and dynamics. Solving the budget problem with a static snapshot of a dynamic process isn't going to work. With the track record that our politicians have, just handing them more money isn't going to solve the problem if they're just going to spend even more of it. A static-forces model of the political appropriations process fails to predict reality, the model where politicians dynamically increase their spending even more than revenue does historically fares better.
(... yes, I know it is odd to approach politics from the point of view of building models to predict reality and seeing which ones successfully, no sarcasm at all, I see hardly anyone take this approach. But there are in fact enough hard facts out there to have some success with this approach, if you can learn to take your science-trained sensibilities and look at the political world. Political science need not be an oxymoron, though I suspect an actual study of political science wouldn't look much like what is currently called that.)
Your model itself is a significant assumption, though. Consider the Clinton tax hikes combined with some moderate restrictions on growth in spending as a counterexample: they ultimately led to the closest thing to a budget surplus we've had in our lifetimes, ignoring details like whether we technically were in surplus or not.
It is fair to ask whether that's sustainable, as in the 2000s we saw our politicians take those projected surpluses and spend them on tax subsidies for the well-off. Which, indeed, is just what that model predicts. But that just speaks to the need to elect better politicians and create better institutions to act as an endogenous curb on unjustified spending.
It is fair to ask whether that's sustainable, as in the 2000s we saw our politicians take those projected surpluses and spend them on tax subsidies for the well-off. Which, indeed, is just what that model predicts. But that just speaks to the need to elect better politicians and create better institutions to act as an endogenous curb on unjustified spending.
Your tone suggests you think you're contradicting me, but your last sentence is simply a restatement of my point. (I'm still trying to work out a clean way of stating it, so I take responsibility for that.) The solution needs to solve the dynamics of the problem. It may visibly manifest as tax hikes and/or spending cuts, but those will be effects, not cause.
what they meant was in addition to the $4 trillion saved by current budget compromises over 10 years that getting rid of the Bush tax cuts would add $4 trillion in ten years thus placing $8 trillion of that $14 trillion deficit as no longer being an impact in ten years due to the surpluses we would have each budget year.
It seems to me that reducing the deficit by 50% is damn good idea.
It seems to me that reducing the deficit by 50% is damn good idea.
It's unlikely that much of today's market action relates to the downgrades. Bonds rallied, and equities extended losses that started in July, not friday night. Don't get caught in the trap of connecting events because they happen about the same time, this is a global event: Germany is down 5% on the day, London 2.5%, japan 2%.
Was it real wealth if it can evaporate so? Before you immediately jump to your guns, roll the question around in your mind: was value destroyed?
Indeed, no real wealth was destroyed. Well, a few cars were set on fire in London, but that was unrelated.
Part of the secret to my happiness is this: I permit myself to feel happy on days when my stock portfolio goes up, but not to feel sad on days when my stock portfolio goes down. In this particular case I'd much rather be happy than consistent.
Part of the secret to my happiness is this: I permit myself to feel happy on days when my stock portfolio goes up, but not to feel sad on days when my stock portfolio goes down. In this particular case I'd much rather be happy than consistent.
Cars are not real wealth, they are negative wealth since they cost money, but don't make money.
Wealth is owning things that can make money, not things that are money or that were bought with money.
Wealth is owning things that can make money, not things that are money or that were bought with money.
Your definition of wealth is broken. A car is wealth. It may be a depreciating asset, but it is still wealth. It has value in its materials. It has value in its construction. It has value in its utility. A car most certainly can make money.
Wealth consists of all things that have value. Shares in a company are wealth. Dollars in your pocket are wealth. A house is wealth. A coal mine is wealth.
Wealth consists of all things that have value. Shares in a company are wealth. Dollars in your pocket are wealth. A house is wealth. A coal mine is wealth.
Are you thinking Robert Kiyosaki's adamant distinction between asset and liability? Wealth is a different thing and cars are a form of it.
You're using a rather odd definition of "wealth" there. Cars are wealth because they are useful... and indeed can be used to make money.
don't make money
A lot of people live farther than walking distance away from work.
A lot of people live farther than walking distance away from work.
> Wealth is owning things that can make money
No, that's an asset. A car is wealth, and could be either an asset or a liability, depending on the car and what you do with it, but it's still wealth.
No, that's an asset. A car is wealth, and could be either an asset or a liability, depending on the car and what you do with it, but it's still wealth.
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A guy named Silver Storm knows better. A magnifying glass and a bar of bullion is worth a magnifying glass and a bar of bullion.
A magnifying glass and a $1B Bond is worth more than a $1B Bond, depending on the perceived stability of the economy's other banking institutions. When things get a bit less stable reserve ratios tighten up.
A magnifying glass and a $1B Bond is worth more than a $1B Bond, depending on the perceived stability of the economy's other banking institutions. When things get a bit less stable reserve ratios tighten up.
Some percentage of the worlds "wealth" has been standing on a foundation of bad debt which is, as it always eventually does, working its way out of the system. Sad that it's going to be painful, but it has to happen, and really the sooner the better.
The question is not why Moody's thinks that U.S. still deserves AAA, but how long it will take until Moody's will have to downgrade U.S.
>basis of our decision [...] size of the U.S. economy
These guys missed have missed all that drama about to big to fail.
These guys missed have missed all that drama about to big to fail.
it wouldn't have anything to do with buffet's stock in moody's (and him already losing billions as an effect of the recent downgrade by S&P)?
In theory, no, but buffet being moody's largest shareholder along with his comments about S&P downgrade being in error sure is tempting fodder for conspiracy theory :)
I suspect that Warren Buffet has a glint in his eye, watching stocks dropping right now. It's a fire sale in what is fundamentally the greatest economic engine on the planet.
I think these two different ratings appropriately reflect the uncertainty of the situation.