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

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

#91

Post by heelhook » Sun, Aug 07, 2011, 5:54 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…

You have to give him credit for the less-is-more approach to this answer, you summed up centuries of macroeconomics and people who dedicated their lives to finding the most optimal solutions in a very easy to follow , well done!

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

#92

Post by dendory » Sun, Aug 07, 2011, 5:54 PM UTC

The US debt increases by billions every day, the entire economy is in the toilet, but the main thing the Treasury is concerned is finding holes in S&P's report.

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

#93

Post by j_baker » Sun, Aug 07, 2011, 5:56 PM UTC

nostromo wrote: post #79

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…

Yes, the likelihood of the US not paying its debt is basically 0 -- what they are really concerned about the US printing money (something that's already started under QE2). Printing money is basically a way to default without calling it a default -- and as a bond holder it can be disastrous.

If it leads to hyperinflation, yes it is a de facto default. However, the simple act of printing money isn't an act of default, and there may be valid reasons for it economically.

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

#94

Post by sachinag » Sun, Aug 07, 2011, 5:56 PM UTC

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…

Our downgrades aren't about our ability to pay - it's about our willingness to pay. That has gone out the window. As S&P says, the Republican Party is now so rabidly anti-tax that their new baseline assumes the indefinite extension of the '01 and '03 Bush tax cuts, meaning that we will run structural deficits forever.

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

#95

Post by fauigerzigerk » Sun, Aug 07, 2011, 5:56 PM UTC

nostromo wrote: post #79

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…

Yes, the likelihood of the US not paying its debt is basically 0 -- what they are really concerned about the US printing money (something that's already started under QE2). Printing money is basically a way to default without calling it a default -- and as a bond holder it can be disastrous.

S&P's base case scenario assumes 2% consumer price inflation and a 3% nominal GDP growth rate. Their downside scenario assumes 1.5% CPI and 2.5% GDP growth. So inflating the debt away is clearly not the basis of their calculations.

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

#96

Post by adrianscott » Sun, Aug 07, 2011, 5:57 PM UTC

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

Actually nobody's talking about actually cutting spending. They're just talking about maybe increasing spending less than they were previously planning to increase it. Crucial distinction, but sadly nobody's taking the media to task for their reporting on this.

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

#97

Post by white_devil » Sun, Aug 07, 2011, 5:58 PM UTC

nick007 wrote: post #45

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.

This isn't whining - the Treasury isn't simply complaining about the downgrade. They are pointing out a fact that the original justification for the downgrade was proved to be wrong, yet after realizing this S&P maintained the same conclusion based on a different set of justifications. This would be like a student pointing out that the teacher incorrectly graded his paper; and after acknowledging that fact, the teach…

How about the US being insolvent? Is that enough justification?

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

#98

Post by fauigerzigerk » Sun, Aug 07, 2011, 6:00 PM UTC

orijing wrote: post #89

fauigerzigerk wrote: post #80

Earlier quoted context omitted.

That's exactly what I said. The keyword is "nominal obligations".

I was answering "Why is the ability to pay considered at all when it comes to the US?" Perhaps I misunderstood your comment, but it read like "it doesn't matter because we can pay all debts."

The government can always pay its nominal debt with interest. I didn't say they were not going to inflate the debt away or that this would be OK. But S&P did not make that assumption in its rating. S&P assumes a 2% inflation rate.

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

#99

Post by DanielBMarkham » Sun, Aug 07, 2011, 6:02 PM UTC

I understand that government departments are led by political appointees. There's a very good reason for it. When we elect somebody as president we expect them to make an imprint on the rest of the federal government. So I'm cool with Treasury running it's own PR game and responding to other news items.

What I'm confused about is why the Treasury Department feels a need to get into a pissing contest with S&P. Nobody likes the ratings agencies, so I guess that makes them an easy target? And the U.S. will just print up more money, so it's not like the debt won't be paid -- the currency will just be trash. So there's definitely a bit of made-up drama here. But even with a math error and the flimsiness of connections to this being germane for Treasury, the overall news is still bad and it's not like somehow that makes the overall U.S. position more tenable. Instead it just looks like a lot of blame-storming -- finding the latest organization or person to point a finger at. In other words, it seems to continue drawing attention to a mess I wouldn't want any part of if I were in Treasury.

So it's not interesting that S&P made an error, or that the debt ceiling debate was so protracted. What's interesting to me is this political strategy of deflection. Can it go on forever? Isn't there some limit, some place -- perhaps if the market tanks another 5 percent next week or an election goes against the party in power -- where you just say "Maybe we need to do our job more and worry about blame a bit less?"

Regardless of the "facts" of the S&P decision, I just can't see that this communications strategy -- as a political tool -- is going to keep paying dividends. This is just like the "factual" chart the White House put out that showed debt as as a function of policies approved by which president -- true but completely pointless except as a tool to deflect blame. Every time there's bad news there's a follow-up story about how it's somebody else's fault. It might work a few times, but it can't keep working. Can it?

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

#100

Post by lucisferre » Sun, Aug 07, 2011, 6:03 PM UTC

sachinag wrote: post #94

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…

Our downgrades aren't about our ability to pay - it's about our willingness to pay. That has gone out the window. As S&P says, the Republican Party is now so rabidly anti-tax that their new baseline assumes the indefinite extension of the '01 and '03 Bush tax cuts, meaning that we will run structural deficits forever.

Hate to just post a +1, me too, but this, it seems, just isn't be said or recognized enough. The US, with one of the lowest tax burdens in the western world (the lowest?) can easily afford to pay down it's debts but without any support for raising taxes in the slightest, not just amongst republicans but from what it seems are a vocal and loud minority (majority?) of Americans, no one can really act surprised by S&P's decision here.