Politcal Consequences of AA+

[Camarohusky]

So the shit has started flying toward the fan.

We needed our leaders to stand up and do what was in OUR interests, and well... they responded by bending us over and showing us some lovin' of the unconsensual sort.

Who do you all see as getting the most flak for this mess? Who will be blamed, and who should be blamed?

Did our Washington outsider experiment fail catastrophically?

Finally, what do you think needs to be doen to restore the faith in our country and do our leaders have the cajone to do what's neccesary?

[animehater]

Double dip maybe? Well anyway I guess this raises the states quite a bit for November 2012; but will we last that long?

[Light]

It would be nice if you provided a link to a news story about this event.

This worries me, but I suppose our country deserved it. Anyway, both sides are to blame. I believe the Tea Party, however, is the most responsible. Their stance of "NO COMPROMISE WHATSOEVER" is politically unrealistic and detrimental to all, and look what has happened as a result of their intransigence. We've lost our triple A rating for the very first time.

[Korriken]

At 8/5/11 10:28 PM, Camarohusky wrote: So the shit has started flying toward the fan.

We needed our leaders to stand up and do what was in OUR interests, and well... they responded by bending us over and showing us some lovin' of the unconsensual sort.

don't they always?

Who do you all see as getting the most flak for this mess? Who will be blamed, and who should be blamed?

Both sides are to blame... each side will blame the other. gop kicks and screams like a little girl yelling, "NO TAXES! NO TAXES!" and the dems kick and scream like little girls yelling, "DONT TOUCH ENTITLEMENTS!"

in reality, both need to be looked at. Problem is, the fools in Washington lack 2 VERY VITAL things for good governance. balls and imagination. whats the dems solution? its always, without fail, "Tax the rich!" why not just slap a tax on something harmful, or better yet

to hell with both parties. One is spending us into oblivion, the other is... more or less doing the same.

Did our Washington outsider experiment fail catastrophically?

the only real "washington outsider" is one who doesn't run for office. those who do are people trying to get on the inside.

Finally, what do you think needs to be doen to restore the faith in our country and do our leaders have the cajone to do what's neccesary?

depends on which direction you want to take the country. getting spending under control would be a damned good start, before we become the next Greece.

[Korriken]

At 8/6/11 12:05 AM, Jedi-Master wrote: It would be nice if you provided a link to a news story about this event.

This worries me, but I suppose our country deserved it. Anyway, both sides are to blame. I believe the Tea Party, however, is the most responsible. Their stance of "NO COMPROMISE WHATSOEVER" is politically unrealistic and detrimental to all, and look what has happened as a result of their intransigence. We've lost our triple A rating for the very first time.

oh yeah just blame one side, the dems were the same way, just with entitlements. it's easy to point to the other side and say, "they did it!" without reflecting on the party of your choice and what they did.

both sides are to blame. both wanted a big political win close to reelection season, and we, the American People lost because of it.

[Camarohusky]

At 8/6/11 01:00 AM, Korriken wrote: oh yeah just blame one side, the dems were the same way, just with entitlements. it's easy to point to the other side and say, "they did it!" without reflecting on the party of your choice and what they did.

I do remember one side offering a very juicy compromise, just to be shouted down by the other...

[aviewaskewed]

At 8/6/11 01:40 AM, Camarohusky wrote: I do remember one side offering a very juicy compromise, just to be shouted down by the other...

Let me point this out:

Boehner has been crowing that he got 98% of what he wanted from Obama in this debt package. That means, to me, this is a policy of Republican making, and what they wanted it to be. But fault must also lie with Barack Obama and the Democrats for going along with it and not having fixed this problem when they had the super majority and the chance. It's also on them for accepting this 98%, I can only assume in an effort to turn around next year if things get worse and say "see what happens when you let those assholes in". Well yes Mr. President...I also see what happens when I let your kind of asshole in too.

Both teams suck, but it's pretty clear one side does shoulder more blame then the other. Saying that doesn't excuse that other side of their blame though. This sort of game is getting very old and tiresome. You can pin more fault on the deserving, without turning that into "they have ALL the fault"

[Camarohusky]

At 8/6/11 02:44 AM, aviewaskewed wrote:

At 8/6/11 01:40 AM, Camarohusky wrote: I do remember one side offering a very juicy compromise, just to be shouted down by the other...

Let me point this out:

My comment was in response to a post that said the Democrats acted with the same sort of my way 100% (or 98%) or the highway. They may have been part of this mess, but they definitely were not the main problem during this most recent battle.

I am pretty sure that if the juicy compromise had been accepted we'd still be AAA, because that compromise, if I remember right, was projected to cut over 4 trillion from the debt.

[orangebomb]

At 8/5/11 10:28 PM, Camarohusky wrote: So the shit has started flying toward the fan.

We needed our leaders to stand up and do what was in OUR interests, and well... they responded by bending us over and showing us some lovin' of the unconsensual sort.

Don't we all? We've been complaining about that for a long, long time.

Who do you all see as getting the most flak for this mess? Who will be blamed, and who should be blamed?

Both sides deserve some blame in this mess, but the ones who deserved to be blackballed the most is the Tea Party. Their hardline stance on compromise when it comes to spending, more or less ruined our credit rating, and forced us to make a impromptu spending bill. The Tea Party are 1-trick ponies, supported by the politically ignorant, {more or less} and now they should recieve flak for not solving the problem they said that they were going to fix.

Did our Washington outsider experiment fail catastrophically?

The only real Washington ousider is the ones who weren't in the House and Senate right now.

Finally, what do you think needs to be doen to restore the faith in our country and do our leaders have the cajone to do what's neccesary?

Getting the debt under control for starters, that is something that they should do, but probably won't until the proverbial bleeding gets out of hand.

[SmilezRoyale]

This outcome was to be expected.

Posted below is a graphic comparing the CBO baseline spending and the spending that will occur under the plan.

Total spending, 2012-21, in baseline: $45.769 trillion.
Total spending, 2012-21, with "cuts": $44.854 trillion.
Spending increase, 2011 to 2021, in baseline: 56.5% (4.6% per year, average).
Spending increase, 2011 to 2021, with "cuts": 53.4% (4.4% per year, average).

The difference between what "We" got, and what we would have been given had the congress agreed to raise the debt limit without any change to the budget, is insignificant, in fact it's basically the equivalent of an accounting error.

This is the problem with dealing in terms of large numbers, ten year budgets, and confusing the difference between relative changes and absolute changes.

If the bush tax cuts expire, which they might, you will get your much desired tax increases.

______________

Boehner and the Tea party cannot stop the federal government from spending more money, and odds are they are not even going to be capable of stopping the federal Government from raising taxes, legally or otherwise.

What is actually going to put the foot on the break of what is being called progress right now are foreign lenders and the state of the US economy. And maybe people simply refusing to pay their taxes.

[animehater]

Watching the news now and thinking to myself how bad is this going to get?

[Gunner-D]

I love how all lefty MSNBC types, Geithner, and the like are saying that S&P has no credibility or lost their credibility in '08 after rating mortgage backed securities AAA.

[SmilezRoyale]

At 8/8/11 11:24 AM, Gunner-D wrote: I love how all lefty MSNBC types, Geithner, and the like are saying that S&P has no credibility or lost their credibility in '08 after rating mortgage backed securities AAA.

I was planning on mentioning that.

All of the 3 rating agencies were giving AAA ratings to those securities, not just S+P, and their sin was in giving a perfect rating to junk securities, not the other way around.

[SmilezRoyale]

By the way *and sorry for the double post* Am I the only one that finds it interesting that the S+P downgrading the credit of the UNITED STATES GOVERNMENT, correspond with a sell off in the stock market, and people rushing to buy US treasuries as a safe haven?

It's like if prior to the Titanic's fated voyage the engineers announced that THAT particular ship wasn't actually unsinkable, and all of the passengers of all the other white star line ships decide to sell their tickets and all of them go buy titanic tickets, because somehow that's the safest option.

[suppishman]

When Obama comes to a place near you :

Gather a crowd

When he says "Yes we can " chant back "No you didn't"

Solution

[orangebomb]

At 8/8/11 04:11 PM, SmilezRoyale wrote: By the way *and sorry for the double post* Am I the only one that finds it interesting that the S+P downgrading the credit of the UNITED STATES GOVERNMENT, correspond with a sell off in the stock market, and people rushing to buy US treasuries as a safe haven?

I was expecting a negative reception in the stock market due to the S&Ps downgrade, but I was honestly surprised that the Dow dropped 600 points because of this, and it may get worse before it gets better I'm afraid. It seems like everyone {Congress and Obama} is shooting themselves in the foot metaphorically speaking, yet they are too blind in their stubborness and incomptence to make a better deal before the bleeding starts.

[SmilezRoyale]

At 8/8/11 04:55 PM, orangebomb wrote:

At 8/8/11 04:11 PM, SmilezRoyale wrote: By the way *and sorry for the double post* Am I the only one that finds it interesting that the S+P downgrading the credit of the UNITED STATES GOVERNMENT, correspond with a sell off in the stock market, and people rushing to buy US treasuries as a safe haven?

I was expecting a negative reception in the stock market due to the S&Ps downgrade, but I was honestly surprised that the Dow dropped 600 points because of this, and it may get worse before it gets better I'm afraid. It seems like everyone {Congress and Obama} is shooting themselves in the foot metaphorically speaking, yet they are too blind in their stubborness and incomptence to make a better deal before the bleeding starts.

You don't get it. People are selling stocks but buying into treasuries. The interest rates that the government has to pay on it's debt has fallen because there are more buyers of government debt.

S+P did the government a favor, in this sense. At least for now.

[AdamRice]

Smilez I think I can answer why investors have been pouring money into US Treasury bonds despite the credit downgrade.

Consider these dates:
7.22.11 S+P 500 begins to fall. This continues up until the conclusion of the debt ceiling debate.
8.2.11 Debt ceiling is raised
8.3.11 S+P 500 responds by raising a measly 6 points
8.4.11 S+P 500 continues to fall
8.5.11 S+P downgrades US Treasury bonds from AAA to AA+
8.8.11 S+P 500 continues to fall

When the stock market begins to fall there is a tendency for investors to switch over to bonds. The current downturn in the stock market started about two weeks BEFORE the downgrade in credit rating from AAA to AA+. Quite conveniently many investors had already diverted all of their cashed out shares into Treasuries and consequently pushed yields to levels far lower than when credit was at AAA.

You could also consider that AA+ is still an excellent credit rating. And that the other two rating agencies - Fitch and Moody's - still have US Treasury bonds at a perfect AAA.

It is an interesting observation though; the rush into what is technically a more risky investment with no improvement in yield. Similar trends have occurred when corporate bonds have been downgraded to AA+.

[Camarohusky]

At 8/8/11 11:45 PM, AdamRice wrote: When the stock market begins to fall there is a tendency for investors to switch over to bonds. The current downturn in the stock market started about two weeks BEFORE the downgrade in credit rating from AAA to AA+. Quite conveniently many investors had already diverted all of their cashed out shares into Treasuries and consequently pushed yields to levels far lower than when credit was at AAA.

This observations is seriously flawed. You claim the drop has nothing, or little to do with the credit downgrade. I claim it has EVERYTHING to do with the downgrade. Look at when it started to fall. July 22. What happened then? The economic sector realized that the government was not going to fix the debt properly. The stocks began a quick decline in anticipation of exactly what happened.

You could also consider that AA+ is still an excellent credit rating. And that the other two rating agencies - Fitch and Moody's - still have US Treasury bonds at a perfect AAA.

True, but AA+ is still worse than AAA.

It is an interesting observation though; the rush into what is technically a more risky investment with no improvement in yield. Similar trends have occurred when corporate bonds have been downgraded to AA+.

More risky? Exactly how so?

[AdamRice]

At 8/8/11 11:52 PM, Camarohusky wrote: This observations is seriously flawed. You claim the drop has nothing, or little to do with the credit downgrade. I claim it has EVERYTHING to do with the downgrade. Look at when it started to fall. July 22. What happened then? The economic sector realized that the government was not going to fix the debt properly. The stocks began a quick decline in anticipation of exactly what happened.

I don't understand. The market started tanking two weeks before the credit downgrade. To me that indicates that the downgrade was only a small contributor to what was an existing trend.

True, but AA+ is still worse than AAA.

That's like saying driving a BMW is worse than a Porsche. It's still pretty darn good.

More risky? Exactly how so?

It's more risky because the credit rating was downgraded. That's the point of a credit rating, to tell investors how reliable the debtor is and in turn how risky it is to lend them money. The US Treasury department is now considered less reliable by S+P, so in theory it should be slightly less likely that they will pay back any money you, me, or the Chinese government lends to them through the purchase of bonds.

[Der-Lowe]

At 8/8/11 04:11 PM, SmilezRoyale wrote: By the way *and sorry for the double post* Am I the only one that finds it interesting that the S+P downgrading the credit of the UNITED STATES GOVERNMENT, correspond with a sell off in the stock market, and people rushing to buy US treasuries as a safe haven?

Like Adam said, that means the financial markets are not reacting to it, they are reacting to the risks of recession. If people want out from the private sector (they're selling stocks), and are willing to lend the government at negative real rates, that is, they are basically asking the government to take their money, then logic dictates the government should spend more to reactivate the economy.
How the current Administration does not see that baffles me.

[Camarohusky]

At 8/9/11 12:03 AM, AdamRice wrote: I don't understand. The market started tanking two weeks before the credit downgrade. To me that indicates that the downgrade was only a small contributor to what was an existing trend.

I am saying that the downgrade was started because of anticipation of a credit downgrade. The drop-off started about 10 days before the deal was struck. It was at about that time when we realized it was unlikely a proper deal would be made. The only rally that happened was inthe short period of time after the deal was made, but before they really realized how terrrible a deal it was.

It's more risky because the credit rating was downgraded.

The pure nature of a bond over stock makes it less risky. Bonds are required to be paid back and must be paid back before dividends (as if anybody does that anymore). Also, on liquidataion, bonds must be paid back first before the asset value is allocated to stock holders. Finally bonds cannot lose value. Their value is set, so unlike stock you can't lose your money unless the company violates its contract and does not pay it back. In other words, a AA bond is still less risky than a AAA stock (especially if S&P rated the stock)

[SmilezRoyale]

At 8/9/11 08:42 AM, Der-Lowe wrote:

Like Adam said, that means the financial markets are not reacting to it, they are reacting to the risks of recession. If people want out from the private sector (they're selling stocks), and are willing to lend the government at negative real rates, that is, they are basically asking the government to take their money, then logic dictates the government should spend more to reactivate the economy.
How the current Administration does not see that baffles me.

If they are accepting the official statistics on inflation, then the interest rates don't seem negative to me [yet] Then again, lending someone money at negative interest rates, if it's the government, is simply a tax. And then again again, I don't particularly care if the stock market falls, especially S+P 500, which, by the looks of it, has been held up unreasonably high for 15 years.

[AdamRice]

At 8/9/11 09:25 AM, Camarohusky wrote: I am saying that the downgrade was started because of anticipation of a credit downgrade. The drop-off started about 10 days before the deal was struck. It was at about that time when we realized it was unlikely a proper deal would be made. The only rally that happened was inthe short period of time after the deal was made, but before they really realized how terrrible a deal it was.

That's probably a valid point. A lot of news headlines did state that investors already knew the downgrade was going to happen. It's probably been in the back of everyone's mind when deciding on their next play for equity or bonds. But I still stand by that the credit downgrade was not a significant factor in the downturn we are now seeing.

I think that it was more influenced by the out of control debt of countries like Spain, Italy, and Greece and a disappointing report on consumer spending.

Also, the European Central Bank bought a bunch of debt from Italy and Spain today and the markets are going back up. I think this further emphasizes that for the time being investors don't care if the United States is AA+ instead of AAA.

The pure nature of a bond over stock makes it less risky. Bonds are required to be paid back and must be paid back before dividends (as if anybody does that anymore). Also, on liquidataion, bonds must be paid back first before the asset value is allocated to stock holders. Finally bonds cannot lose value. Their value is set, so unlike stock you can't lose your money unless the company violates its contract and does not pay it back. In other words, a AA bond is still less risky than a AAA stock (especially if S&P rated the stock)

But I was comparing AAA bonds to AA+ bonds. Of course an AA+ government bond is less risky than purchasing shares in a private company. Maybe we just misread each others posts?

[Der-Lowe]

At 8/9/11 10:34 AM, SmilezRoyale wrote: If they are accepting the official statistics on inflation, then the interest rates don't seem negative to me [yet]

Eh, unless the government is overstating inflation, a divergence of real inflation and announced inflation means that the real interest rates are lower in reality than according to government statistics.
I was talking about the yield of TIPS, Treasury Inflation Protected Securities for the next 10 years. They are indexed to the CPI.

Then again, lending someone money at negative interest rates, if it's the government, is simply a tax.

No? Lending is not compulsory.

And then again again, I don't particularly care if the stock market falls, especially S+P 500, which, by the looks of it, has been held up unreasonably high for 15 years.

I'm more worried about what the fall shows, pessimism about future growth, which has a bit of self-fulfilled prophecy in it.

[SmilezRoyale]

At 8/9/11 06:05 PM, Der-Lowe wrote:

At 8/9/11 10:34 AM, SmilezRoyale wrote: If they are accepting the official statistics on inflation, then the interest rates don't seem negative to me [yet]

Eh, unless the government is overstating inflation, a divergence of real inflation and announced inflation means that the real interest rates are lower in reality than according to government statistics.

You're probably right this time, the S+P report [I read most of it] based it's assumptions on a 4% growth rate [lol] and a 2% inflation rate, and the last time I heard about the price for a 10 year treasury bond, it was at 2.4, I'm checking now and the inflation rates

http://www.treasury.gov/resource-center/
data-chart-center/interest-rates/Pages/T extView.aspx?data=yield

http://www.fintrend.com/inflation/inflat ion_rate/CurrentInflation.asp

It's either very close to zero or negative.

I was talking about the yield of TIPS, Treasury Inflation Protected Securities for the next 10 years. They are indexed to the CPI.

Then again, lending someone money at negative interest rates, if it's the government, is simply a tax.

No? Lending is not compulsory.

Taxation is involuntary? Blashemy!

But yo're right, I forgot. I should reword tax to 'voluntary charitable contribution to the US treasury'

I'm more worried about what the fall shows, pessimism about future growth, which has a bit of self-fulfilled prophecy in it.

In the case of S+P, it looks as if the prices were brought to an artificially high level in the late 90's, fell in the early 2000's, was brought up again, then fell back to roughly what it would have been had it followed more closely with the trend line set up from approximately 1980 to 1995. but people get so accustomed to the high point that they assume that there's something wrong with the low rather than the other way around. The same way people talk about housing prices, as if they *ought to* have been as high as they were at their peak, rather than following much more reasonable historical trends.

[AdamRice]

At 8/9/11 07:08 PM, SmilezRoyale wrote:

In the case of S+P, it looks as if the prices were brought to an artificially high level in the late 90's, fell in the early 2000's, was brought up again, then fell back to roughly what it would have been had it followed more closely with the trend line set up from approximately 1980 to 1995. but people get so accustomed to the high point that they assume that there's something wrong with the low rather than the other way around. The same way people talk about housing prices, as if they *ought to* have been as high as they were at their peak, rather than following much more reasonable historical trends.

This, Smilez, is actually brilliant. I still don't know how I feel about this (if I am in agreement or not), but it is the type of thing that will keep me up all night pondering. I even quoted it on another forum - with your name of course.

[Der-Lowe]

At 8/9/11 07:08 PM, SmilezRoyale wrote: In the case of S+P, it looks as if the prices were brought to an artificially high level in the late 90's, fell in the early 2000's, was brought up again, then fell back to roughly what it would have been had it followed more closely with the trend line set up from approximately 1980 to 1995. but people get so accustomed to the high point that they assume that there's something wrong with the low rather than the other way around. The same way people talk about housing prices, as if they *ought to* have been as high as they were at their peak, rather than following much more reasonable historical trends.

Well, houses are a different issue, since their price determines the soundness of the mortgage, and therefore the solvency of banks. As I said before, inflation can solve that problem, it would be an efficient solution.

[SmilezRoyale]

At 8/10/11 01:07 AM, Der-Lowe wrote:

Well, houses are a different issue, since their price determines the soundness of the mortgage, and therefore the solvency of banks. As I said before, inflation can solve that problem, it would be an efficient solution.

I had figured that it was the unsoundness of the loans that was driving the housing prices, not the other way around.

and I don't see how making everything else more expensive in order to level up with housing prices is an efficient solution.

[Der-Lowe]

At 8/10/11 03:32 PM, SmilezRoyale wrote:

At 8/10/11 01:07 AM, Der-Lowe wrote:

Well, houses are a different issue, since their price determines the soundness of the mortgage, and therefore the solvency of banks. As I said before, inflation can solve that problem, it would be an efficient solution.

I had figured that it was the unsoundness of the loans that was driving the housing prices, not the other way around.
and I don't see how making everything else more expensive in order to level up with housing prices is an efficient solution.

How can you execute the mortgage of a worthless home? Inflation would avoid the costly rewriting of contracts, and reduce real debt burden. People would be able to pay back their mortgages, and getting some money back is better than getting zero (the real figures are 40% of the real value) from the point of view of the banks. Since your accounting is in historical terms, the income reports of bank won't look too bad either.
Everyone is better off, therefore it is Pareto superior to the present.