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

treasury.gov

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

#31

Post by jonknee »

SoftwareMaven wrote: post #21
_delirium wrote: post #13

Earlier quoted context omitted.

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.

We were within days of the debt ceiling, not of default. Plenty of things could have been shuffled around to meet all debt payments (including some politically useful ones like stop sending SS checks, don't pay the troops, etc).

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

#32

Post by 16s »

scottkrager wrote: post #25

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.

They deserve to be called out. This isn't their only mistake. These clowns are the same bunch who kept giving AAA scores to complex mortgage-backed securities during the housing boom.

http://www.bloomberg.com/news/2011-04-13/moody-s-s-p-caved-t...

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

#33

Post by wtn »

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…

This is a really stupid idea.

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

#34

Post by jbooth »

SoftwareMaven wrote: post #21
_delirium wrote: post #13

Earlier quoted context omitted.

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.

Tea Party. Given how the Tea Party has paralyzed the political process.

"process in Washington" makes it sound like inclement weather. It's poeple.

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

#35

Post by nextparadigms »

losvedir wrote: post #29

"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 d…

First of all the $4 trillion was over 10 years, not 1 year. Second, as far as I know, they haven't actually done any spending cuts - just cuts from the "spending increase" they were planning.

And USA may "plan" $4 trillion dollar less spending, but that doesn't mean they will actually do it. Right now the deficit keeps rising, and fast. It's supposed to go down, not up.

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

#36

Post by jpdoctor »

This was my favorite part: "Independent of this error, there is no justifiable rationale for downgrading the debt of the United States."

Apparently having a fraction of Representatives (you know, reps from that body responsible for initiating all spending bills) saying that default might be a good thing is not a "justifiable rationale".

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

#37

Post by bubbleRefuge »

hugh3 wrote: post #8
_delirium wrote: post #6

It's odd that there's so much emphasis being placed on short-to-medium-term numbers when it comes to bond ratings in the first place. Especially at current interest rates, it has relatively minor implications for debt sustainability: $4 trillion in debt, at real interest rates hovering just above 1%, is maybe $50b a year extra interest in real terms. Surely the federal government's solvency doesn't turn on questions…

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…

Modern Monetary Theory reveals the entire premise of this issue to be false. The private sector does not fund the public sector in the way that most people believe. Non-convertible floating FX currency regimes (ie fiat money) such as the US,UK, and Japan can meet any and all financial obligations by issuing currency. Thus: 1) Taxes do not fund government. ( they 'back' the currency) 2) Treasury securities do not fund government. ( they are a tool to control interest rates) 3) Social security is solvent and we are not creating a financial burden for our grandchildren. (we are creating a burden by not upgrading and investing in infrastructure such as roads,highways,mass transit,etc) 4) Medicare is solvent ( though we have to clean up the fraud) 5) Private sector savings do not fund investment. ( banks create loans out of thin air)

The public is being lied to by politicians( on both sides of the aisle) who are selling a false need for government austerity when in fact what we need is the government to invest more. Much more.

People stop believing the bullshit from mainstream media bought and paid for by the plutocrats. Spend a bit of time to educate yourself on Modern Monetary Theory. It will change your political outlook. Its an earth is round vs earth is flat type of revelation. You can Google the following list of founders and well known MMT advocates in academia and the blogosphere.

Warren Mosler - www.moslereconomics.com Dr Randal Wray - UMKC neweconomicperspectives.blogspot.com Dr Stephanie Kelton - UMKC neweconomicperspectives.blogspot.com Dr Scott Fullwiler Wartburg College neweconomicperspectives Dr Bill Mitchel - U of Newcastle, Australia. http://bilbo.economicoutlook.net/blog/ Marshall Auerback http://www.newdeal20.org/ Dr James K Galbreath UT - Austin Mike Norman Fox Business Analyst www.mikenormaneconomics.org ( Mike takes a beating on Fox -bless him)

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

#38

Post by mgkimsal »

16s wrote: post #32
scottkrager wrote: post #25

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.

They deserve to be called out. This isn't their only mistake . These clowns are the same bunch who kept giving AAA scores to complex mortgage-backed securities during the housing boom. http://www.bloomberg.com/news/2011-04-13/moody-s-s-p-caved-t...

Well, they were raked over the coals (though more should have been done) when they were too lenient. Now they're being too strict, and are still getting crap for it.

I'm not a big fan, but from a 'credit worthiness' standpoint, I'm not surprised the US was downgraded. With the sorts of people running the show, we demonstrated that we were cavalier enough to nearly get to a point where we couldn't pay our bills. And the rhetoric coming out of the Congress was serious enough to contribute to this.

Perhaps this is an oversimplification, but if I kept broadcasting to the all my creditors as well as experien, transunion and equifax that I might not pay my debts, eventually that might factor in to my credit score. If I kept announcing that I might not pay, and my credit score was lowered, I shouldn't be surprised.

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

#39

Post by nextparadigms »

16s wrote: post #32
scottkrager wrote: post #25

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.

They deserve to be called out. This isn't their only mistake . These clowns are the same bunch who kept giving AAA scores to complex mortgage-backed securities during the housing boom. http://www.bloomberg.com/news/2011-04-13/moody-s-s-p-caved-t...

By the same logic, why do all the other rating companies still give USA an AAA rating, when they shouldn't? Maybe S&P is the only one actually doing the right thing here, no matter how upset people get about it. Nobody likes to get downgraded. That doesn't mean it shouldn't happen if you're wasting your debt away.

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

#40

Post by jancona »

nhebb wrote: post #10

According to the CBO last week's budget agreement cuts $2.1-2.4T in spending [1]. S&P's guidance was that we cut $4T. So either the CBO is off as well, or this typical Washington budgetary spin. [1] http://cbo.gov/doc.cfm?index=12357

My reading of the Treasury release is that this all has to do with"baselines". Compared to current spending the deal didn't make cuts at all--spending will continue to increase over the next 10 years. The "cuts" are compared to a projection of what would have been spent without the deal, called a baseline. There are various ways of calculating baseline, i.e. how you account for inflation.It seems that S&P's error was related to misunderstanding which baseline the 2.1T applied to.
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