Just the Facts: S&P's $2 Trillion Mistake • Hacker News Board

Re: Just the Facts: S&P's $2 Trillion Mistake

#21

Post by SoftwareMaven » Sun, Aug 07, 2011, 4:24 PM UTC

_delirium wrote: post #13

hugh3 wrote: post #7

Earlier quoted context omitted.

Uhh, neither. The Treasury claims it was a "mistake", but personally I can't see how anyone could possibly still consider US bonds to have the highest possible rating. However, if for some reason you did think that, then Hanlon's Razor would apply.

Since the U.S. bonds are all denominated in the same money that it controls, and the federal government has huge assets and potential revenue streams, I'd put a risk of default quite low; low enough to get an AAA, anyway. The federal government pretty much can't default unless it actively chooses to, given the huge number of options for servicing debt at its disposal (cutting spending elsewhere, raising taxes, printi…

But that is exactly why they downgraded us. Given everything you listed, we still were within days of default, thanks to how paralyzed the political process has become in Washington.

Re: Just the Facts: S&P's $2 Trillion Mistake

#22

Post by wallygold » Sun, Aug 07, 2011, 4:30 PM UTC

mindstab wrote: post #17

They don't see publicly debating for a month about defaulting on a loan for the first time and coming close to being within a day of doing it as anything that could possibly shake investor confidence? Isn't the AAA rating for ultra rock solid, and that dragged on public debate gives off the impression of anything but ultra rock solidness.

Exactly. You can't run around threatening not to pay your bills and then be surprised when you are seen as less credit-worthy than before.

A credit rating is a measure of whether or not you will pay your bills. It's not a measure of your ability to pay those bills.

Re: Just the Facts: S&P's $2 Trillion Mistake

#23

Post by encoderer » Sun, Aug 07, 2011, 4:31 PM UTC

shareme wrote: post #16

hugh3 wrote: post #8

Earlier quoted context omitted.

He's a bit of a partisan, but in this case I think Krugman's analysis is basically correct, that real questions of debt sustainability aren't +/- $4trillion in the next 10 years, but longer-term insufficiently funded liabilities in healthcare and pensions: Krugman is a Democrat partisan, but complaining about unfunded liabilities in healthcare and pensions is exactly what the Republicans are doing too. If Krugman and…

but they are again refusing to face facts in front of them..its not unfunded health care liabilities..its UNFUNDED LIABILITIES in FED Budget that means anytime a law is passed without the means to pay for it..for example going to war in Iraq, etc without raising taxes to pay for it.. Another example taking over the Ed Loans from the private sector and than not raising some type of tax to pay for it. It should be that…

Your student loan bill is a bad example. In this case the Gov't was already subsidizing these loans and being charged enough by the banks servicing them for those banks to also turn a profit on that line of business.

By bringing it in-house, the governement doesn't increase their liabilities, and now they don't have to pad the profit margins of loan servicers.

But anyways, generally, what you're talking about is call "paygo" rules. They've been instituted before as house rules (and commonly ignored), you're advocating for them being codified into law. Not a bad idea I don't think, but i haven't given it a lot of thought.

Re: Just the Facts: S&P's $2 Trillion Mistake

#24

Post by pohl » Sun, Aug 07, 2011, 4:32 PM UTC

The claim about S&P changing their justification does not ring true. Their press release on Friday specifically mentioned the recent brinkmanship as a core concern.

Re: Just the Facts: S&P's $2 Trillion Mistake

#25

Post by scottkrager » Sun, Aug 07, 2011, 4:35 PM UTC

Yikes, I'd hate to be in the accounting department at S&P the next few years. Can you say, "random IRS audit". Crazy to see the feds calling out a company like this in a blog post. Crazy times.

Re: Just the Facts: S&P's $2 Trillion Mistake

#26

Post by mkr-hn » Sun, Aug 07, 2011, 4:35 PM UTC

thomasgerbe wrote: post #15

j_baker wrote: post #3

I suppose this is a good bit of posturing, but it seems disingenuous. The White House and Treasury should know better than anyone else how broken our political system is.

Given their track record, that's perhaps giving them more credit than I think they deserve.

This comes off as mindless sniping without any support for the point. It's a non-contribution.

Re: Just the Facts: S&P's $2 Trillion Mistake

#27

Post by jancona » Sun, Aug 07, 2011, 4:36 PM UTC

mindstab wrote: post #17

They don't see publicly debating for a month about defaulting on a loan for the first time and coming close to being within a day of doing it as anything that could possibly shake investor confidence? Isn't the AAA rating for ultra rock solid, and that dragged on public debate gives off the impression of anything but ultra rock solidness.

The US did not come within one day of defaulting. It came within a day of hitting the debt ceiling, which is a very different thing. Despite the way it was portrayed, the government could have limped along for days our weeks without defaulting.

(I'm not saying that would have been a good thing--just that the idea of August 2nd as the day default would have occurred is incorrect.)

Re: Just the Facts: S&P's $2 Trillion Mistake

#28

Post by jonknee » Sun, Aug 07, 2011, 4:36 PM UTC

shareme wrote: post #16

hugh3 wrote: post #8

Earlier quoted context omitted.

He's a bit of a partisan, but in this case I think Krugman's analysis is basically correct, that real questions of debt sustainability aren't +/- $4trillion in the next 10 years, but longer-term insufficiently funded liabilities in healthcare and pensions: Krugman is a Democrat partisan, but complaining about unfunded liabilities in healthcare and pensions is exactly what the Republicans are doing too. If Krugman and…

but they are again refusing to face facts in front of them..its not unfunded health care liabilities..its UNFUNDED LIABILITIES in FED Budget that means anytime a law is passed without the means to pay for it..for example going to war in Iraq, etc without raising taxes to pay for it.. Another example taking over the Ed Loans from the private sector and than not raising some type of tax to pay for it. It should be that…

> Another example taking over the Ed Loans from the private sector and than not raising some type of tax to pay for it.

Don't take talking points at face value... Student loans in the "private sector" were a misnomer--they were backed by the Fed Gov't. The private lender had no risk, just guaranteed profit. We saved money by ending subsidizing the private market and making the loans directly. The "takeover" was simply ending the government backing of private loans. Not much of a takeover if you ask me. The private sector can still make loans all they want, they just have to be on the hook for it.

Re: Just the Facts: S&P's $2 Trillion Mistake

#29

Post by losvedir » Sun, Aug 07, 2011, 4:38 PM UTC

"S&P has said their decision to downgrade the U.S. was based in part on the fact that the Budget Control Act, which will reduce projected deficits by more than $2 trillion over the next 10 years, fell short of their $4 trillion expectation for deficit reduction."

This confuses me. I'd always understood "deficit" as the amount the government spends more than it takes in, in a given year, and "debt" as the cumulative deficit, i.e., total money owed.

In this case, it seems like they're using "deficit" to mean total debt? Or is the US really increasing our debt by more than $4 trillion a year, and this is a plan to overspend by less?

Re: Just the Facts: S&P's $2 Trillion Mistake

#30

Post by mkr-hn » Sun, Aug 07, 2011, 4:40 PM UTC

hugh3 wrote: post #19

shareme wrote: post #16

Earlier quoted context omitted.

but they are again refusing to face facts in front of them..its not unfunded health care liabilities..its UNFUNDED LIABILITIES in FED Budget that means anytime a law is passed without the means to pay for it..for example going to war in Iraq, etc without raising taxes to pay for it.. Another example taking over the Ed Loans from the private sector and than not raising some type of tax to pay for it. It should be that…

My preferred solution is this: 1. Every year, the US Government figures out how much money it wants to spend. 2. Then, it figures out what the (flat) tax rate would need to be in order to rustle up that much money. 3. Then, it sets the tax rate and sends everyone a bill. You could do this a year in advance just to make sure everybody knew how much they'd be getting taxed. But the important thing is that everybody in…

Then a financial crisis hits and the government finds itself unable to react to the needs of a paralyzed market. It's a nice idea in principle. But any time something like this or a balanced budget law/rule comes up in congress, it never has a provision for reacting to emergencies.