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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

#11

Post by andrewflnr »

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.

Agreed. The real mistake made by all the rating agencies was in not downgrading the US years ago. And I say that as an American citizen who wants to be patriotic, but is just disgusted by the unrestrained spending in Washington.

If the rating agencies had all had the courage to rock the boat and drop us a point a couple years ago, I think that the sound of money going away might have woken up even our political leaders to do something to stop it.

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

#12

Post by hugh3 »

checker wrote: post #9
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 would whine if a teacher's mistake sent me from a D to an F if a D would let me "pass".

Well this is a difference between an A and a B. Or rather it's the difference between an AAA and an AA+, because grade inflation in the credit rating world is even worse than grade inflation in academia.

But there's a logical flaw here. Even if there was an error in the initial calculation, that doesn't mean that the end result should be different. You can show me that you actually got 81% rather than 80% if you like, but that's still a B.

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

#13

Post by _delirium »

hugh3 wrote: post #7
toddh wrote: post #2

Mistake or deliberate market manipulation?

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, printing money, selling land). So it's almost entirely a political question of how high you think the chances are that the government will choose to default rather than use one of the other options. I would rate that pretty low. But it's not really an actuarial question either way; it's a guess about policy.

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

#15

Post by thomasgerbe »

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.

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

#16

Post by shareme »

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…

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 in order to pass a bill in Congress that a pair of bills one to enact the law and one to pay for it. That is the budget reform that we need.

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

#17

Post by mindstab »

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.

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

#19

Post by hugh3 »

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…

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 the country needs to see the immediate hip-pocket consequences when the government spends more money.

Still doesn't help with things like SS and Medicare, though, which cost a little bit of money in the year they're passed and vast sums of money several decades into the future.

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