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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

#51

Post by gareim »

hugh3 wrote: post #4

I hate it when students whine about the unfairness of their lousy grades and how they really deserved a higher one. It's even worse when the Treasury Department does it.

I ended up going to summer school for physics because my teacher "unfairly" gave me an F. She told us at the beginning of the school year that we only had to do 10 of those honor questions (out of 20 possible) every unit and at the end of the year told us "Oh, I meant you only had to do 10 to not drop a letter grade" which was retarded and the class went nuts at this. And once, another student accidentally took home my packet for the weekend on the day it was due and when I tried explaining it to the teacher the following Monday, all she could do was smile and say I get a zero regardless. It was worth a SIXTH of my grade. She also never taught us and just threw homework and tests at us.

I was pretty pissed that I ended up getting an F instead of a C or D even. If you think an A to a B doesn't matter, change ALL your A's to B's and see how you like it being "fair". As for the credit downgrade, maybe it was right maybe it wasn't. Still trying to decide for myself.

P.S. That damn physics teacher is still teaching (aka sipping her Diet Pepsi in her chair all day) at my school.

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

#52

Post by akamaka »

Independent of this error, there is no justifiable rationale for downgrading the debt of the United States... The magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P’s ratings action.

The conclusion blog post sounds an awful lot like an opinion, considering the title is "Just the Facts".

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

#53

Post by _delirium »

CWuestefeld wrote: post #48
bubbleRefuge wrote: post #37

Earlier quoted context omitted.

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…

Sure, if you choose to look at it that way. But if you're going to make "Non-convertible floating FX currency regimes (ie fiat money) ... can meet any and all financial obligations by issuing currency", then you've got to consider that entire reference frame. Issuing currency is identically equal to inflation, which is itself nothing more than a tax levied against those holding assets denominated in that currency. Us…

> Issuing currency is identically equal to inflation

That's the main dogma of monetarism, but the empirical evidence for it is fairly contested (especially by neo-Keynesians). Measured inflation in many cases doesn't seem to actually move in line with what changes in the money supply would predict; for example, we should have much higher inflation currently than we do. Some monetarists did predict significant inflation, or even hyperinflation, two years ago, in the wake of stimulus spending and quantitative easing, but it didn't materialize. But I suppose I'll keep reloading http://www.hyperinflatingyet.com periodically just to be safe...

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

#54

Post by [deleted] »

fauigerzigerk wrote: post #50

S&P's mistake is certainly incredibly embarrassing but apart from that I'm asking myself a much more fundamental question: Why is the ability to pay considered at all when it comes to the US? A country that is indebted in its own currency can theoretically never default on its nominal obligations. Not due to inability to pay at least. I don't think that credit rating agencies even try to pass judgement on the likelyh…

[deleted]

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

#56

Post by Goladus »

akamaka wrote: post #52

Independent of this error, there is no justifiable rationale for downgrading the debt of the United States... The magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P’s ratings action. The conclusion blog post sounds an awful lot like an opinion, considering the title…

Yes. Claiming it's "Just the Facts" is technically incorrect. Considering the source, though, it's a lot less misleading than it could be.

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

#57

Post by asg »

CWuestefeld wrote: post #48
bubbleRefuge wrote: post #37

Earlier quoted context omitted.

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…

Sure, if you choose to look at it that way. But if you're going to make "Non-convertible floating FX currency regimes (ie fiat money) ... can meet any and all financial obligations by issuing currency", then you've got to consider that entire reference frame. Issuing currency is identically equal to inflation, which is itself nothing more than a tax levied against those holding assets denominated in that currency. Us…

Sure, it can cause inflation, but it is incontrovertible that governments can always replay local currency debt by issuing currency (except the EURO, where priting money has been offloaded to an external entity). Which is why sovereign debt in local currency is always the risk free credit, by definition. And the US is in the enviable position where, due to the nature of the dollar being the global reference currency, all (most?) of its debt is denominated USD.

So I'm left puzzled at the recent debate about the US debt.

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

#58

Post by cop359 »

fauigerzigerk wrote: post #50

S&P's mistake is certainly incredibly embarrassing but apart from that I'm asking myself a much more fundamental question: Why is the ability to pay considered at all when it comes to the US? A country that is indebted in its own currency can theoretically never default on its nominal obligations. Not due to inability to pay at least. I don't think that credit rating agencies even try to pass judgement on the likelyh…

No one was seriously suggesting that we never pay our debts ever again, There really was two things proposed:

One was too not raise the debt ceiling and use SS and Medicare funds to pay off the debt;

The other was to default but just for a short while so as to provide more pressure on the Democrats. If we defaulted for say a month; it would hurt a minuscule fraction of the debt holders. If it actually would hurt debt holders China would be pointing nukes at us.

So the risk that a lender would not get his money back is incredibly small. As for inflating the money away. They could come to the conclusion that that would hurt the economy more then it is worth and default on all the debt collective (like of like declaring bankruptcy). This is a possibility in the distant future.

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

#59

Post by j_baker »

fauigerzigerk wrote: post #50

S&P's mistake is certainly incredibly embarrassing but apart from that I'm asking myself a much more fundamental question: Why is the ability to pay considered at all when it comes to the US? A country that is indebted in its own currency can theoretically never default on its nominal obligations. Not due to inability to pay at least. I don't think that credit rating agencies even try to pass judgement on the likelyh…

It's very rare that a sovreign nation defaults because of outright inability to pay. I mean if you think about it, we could probably pay down our debt by raising taxes to an exorbitantly high rate and limiting spending to just the military and police. One former Soviet nation that was deeply in debt got out by forcing its people to work slavishly for little pay.

However, most well-intentioned leaders don't have the stomach for these measures (and the bad ones at least know they'll be the target of a coup if they try them), so they default. And the reality is that oftentimes, that's the rational choice.

So more than likely, willingness to pay was the only thing under consideration. And with elections nearing next year, I think they may be holding out for political change before they downgrade us further.

In all, I don't like the credit agencies or what the downgrade represents, but I can't disagree with it.

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

#60

Post by Iv »

I still question a scale where it is possible to get the highest note while have 70+% of the GDP in debts and that this proportion is raising.

A country who would reduce its debts should in theory be a better bet but this scale does not allow for that.

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