Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

treasury.gov

Post reply on HN
Print view View original

141–150 of 242 posts

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

#141

Post by mgkimsal »

sixtofour wrote: post #61
mgkimsal wrote: post #38

Earlier quoted context omitted.

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 t…

"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." s/couldn't/wouldn't Our ability to pay our bills at present was never in question. The issue was whether we would merely decide not to pay. That induces a certain queasiness in the upper deck cabins on the ship of state.

My understanding is that we wouldn't be able to pay 100% of all our obligations pretty soon after that. Yes, we could pay bond holders, at the expense of other obligations. I may have been misinformed, but that was my takeaway.

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

#142

Post by OstiaAntica »

fauigerzigerk wrote: post #101
jongreenlee wrote: post #85

Earlier quoted context omitted.

>>voted in favor of default It was framed this way by some involved parties, but it's a second independent decision to let that happen. The other option was for the Treasury to stop issuing checks at a rate higher than than it's inflows. This is similar to what many of us might have done at some point (college might be one), riding as close to your limit as possible, but making minimum payments and reducing spending…

I don't think anyone who is forced to "set priorities", meaning he can only honor some obligations but not all of them, deserves a AAA rating.

No all obligations are equal, and the AAA rating is only on some of them. U.S. bonds are AAA, but you can be sure that your future Social Security benefits have junk status.

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

#143

Post by jandevos »

jerf wrote: post #104
lucisferre wrote: post #100

Earlier quoted context omitted.

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'…

It isn't our current debts that have people concerned. It's the combination of current debts and unsustainable future obligations, which are so large that they in fact can't be paid down by just raising taxes. Barring an adjustment in what they are, they grow to the point that they eventually consume 100% of the economy in something like 40 years in conjunction with interest payments, but of course they become comple…

Well, there is, technically, which is that some amazing breakthrough in technology suddenly makes us all a lot wealthier very quickly, which is such a long shot it's hardly worth talking about. Wealth? Is there really a lack of wealth in the US? I though the problem was not a lack of wealth, but more a lack of those in the US that possess it in abundance to share it with those who don't (e.g., by paying taxes). Even if some 'technology' came along that could generate wealth, that would very likely still be owned by a minority of the population and would not solve any of the problems faced by the nation as a whole.

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

#144

Post by esrauch »

redthrowaway wrote: post #133
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.

If your Math professor claims you failed a midterm, then you show them they forgot to count a page's worth of marks, but they said you still the same grade because they doubted your "willingness" to pass, you'd be well within your rights to complain.

I really don't think that it is as simple as that. If your professor refused to write you a recommendation for a research position because your grades are a bit low and he doesn't think you are responsible because you were dangerously close to missing important deadlines, then you show that his grade calculation was wrong but he still won't recommend you because the second part was still true.

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

#145

Post by prostoalex »

orijing wrote: post #75
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…

"We can pay back our debt since it's denominated in dollars" is a meme thrown around online blogs, but it is misguided. If the way the debt is paid back is through currency devaluation, it's safe to say that the investors were not truly paid back--i.e. there was a loss of principal measured in purchasing power. So while it's true that the US can always pay back the full dollar amount of how much it owes, it's less tr…

Not all US debt is classic Treasuries. They also sell inflation-linked debt instruments, such as TIPS and I-Bonds.

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

#146

Post by prostoalex »

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...

To be fair, some of those junk bonds were insured by AIG, which did have a AAA rating.

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

#147

Post by InclinedPlane »

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…

Being deep in debt is a big problem for a country but not the worst thing ever. With a fair amount of fiscal discipline it's usually possible to dig out of debt as long as it's not such a huge multiple of GDP. About the worse thing a country can do to deal with big debt is to print money as that will create an inflationary spiral which is harder to get out of than just debt. Indeed, runaway inflation can wreck the economy and destroy GDP growth. And from a creditor's perspective being repaid in inflated dollars does not actually repay the value of the debt.

If the US were to try to inflate its way out of debt by printing money it would result in a tremendously fast crash of the US's credit rating.

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

#148

Post by marcamillion »

InclinedPlane wrote: post #147
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…

Being deep in debt is a big problem for a country but not the worst thing ever. With a fair amount of fiscal discipline it's usually possible to dig out of debt as long as it's not such a huge multiple of GDP. About the worse thing a country can do to deal with big debt is to print money as that will create an inflationary spiral which is harder to get out of than just debt. Indeed, runaway inflation can wreck the ec…

So says the theory, yet Ben Bernanke has created hundreds of billions if not trillions of fresh cash and injected into the economy and we are not seeing runaway inflation. Sure, it's not used to pay down debt, but....you get the idea.

Fiscal discipline doesn't always work. See Greece. Greece has been enduring fiscal discipline for at least the last 12 - 18 months...but things only get worse. You can argue that is because Greece's situation is so bad, that the fiscal discipline it needs is more than it has gotten - but that is a tough line to argue because it's hard to know how much is enough. At some point, it becomes unproductive.

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

#149

Post by rayiner »

Zumzoa wrote: post #116
jholman wrote: post #110

Earlier quoted context omitted.

My apologies if this is just rampant ignorance talking (including ignorance of American future obligations), but it appears to me that "The US has future obligations so large that even a magical 100% tax in a magically healthy economy cannot pay for them" is, as they say, an extraordinary claim requiring extraordinary evidence. Or at least some evidence. And even were that proven (or at least were that to be slightly…

This article http://www.economist.com/node/21524889 covers some of it. "Health spending will rise by 5.8% each year from 2010 to the end of 2020, according to actuaries at the Centres for Medicare and Medicaid Services (CMS). In 2020 health care will account for one-fifth of America’s economy." The article goes on to point out that surveys suggest that the Federal government will be liable for a huge amount of medica…

Staggeringly poor article. Projecting out a trend line by effectively assuming sustained exponential growth is completely retarded. It's really the same as the projections predicting that the sustained 1990s bubble would continue and the US debt would be paid off by 2009.

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

#150

Post by shahan »

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…

I was wondering about the exact same thing. Ability and willingness to pay should mean ability and willingness to pay in real terms. Anything else doesn't seem to make sense.

Also: If the US defaults, how does it go down?

Here's why I'm confused:

Given that the US can't default on its nominal obligations, how does it default on its real obligations, so to speak? Printing money, aka inflation, is one way, but there's always inflation. Does that mean that the US is always defaulting to some degree? I'm thinking no, because lenders are compensated for higher inflation with higher interest rates. Would the US ever go "no, Chang, we're not going to give back your $10, sorry"?

Maybe someone can enlighten me.

Post reply on HN