United States loses AAA credit rating from S&P • Hacker News Board

Re: United States loses AAA credit rating from S&P

#101

Post by [deleted] » Sat, Aug 06, 2011, 1:58 AM UTC

bmelton wrote: post #76

_delirium wrote: post #36

Earlier quoted context omitted.

Treasuries act as a money store for large institutions that I think would be hard for them to replace in practice. They use T-bills in particular as more or less a jumbo-sized version of an FDIC-insured bank account. Where would they move that money to? I.e., who else provides a similarly safe account where you can deposit $50 billion? Can't be to a bank account, because all the major banks have even lower ratings. T…

You could, for example, move your money to Canadian treasuries, which are AAA rated, couldn't you? I am admittedly learning much of this as I read, but it seems to me that a large concern would be the amount of money that might simply shift out of our economy to economies with better (safer) credit ratings.

[deleted]

Re: United States loses AAA credit rating from S&P

#102

Post by geuis » Sat, Aug 06, 2011, 1:58 AM UTC

winestock wrote: post #72

geuis wrote: post #52

(Reference: http://www.federalbudget.com/ ) Steps to recovery: 1) End all offensive military actions overseas. Finish winding down Iraq and abandon Afghanistan wholesale. These actions have cost several trillion dollars over the last 10 years. We can't get that money back, but we can stop spending more. 2) Defense spending is in the top 3 highest budget expenditures. Cut it by 1 third across the board. Maintain impor…

You're more liberal than conservative. I'm more conservative than liberal. Bless your heart, I agree with all of your points. At the end of the Cold War, other conservatives were making the same noises that you're making now. For their pains, their careers were destroyed by the people who run the current mainstream conservative movement. Let's take a look at those points of yours. Points 1 & 2. Cut defense spending a…

Thanks. I have no refutations to any of your comments. I know exactly what you mean.

One interesting thing about your first statement, "At the end of the Cold War, other conservatives were making the same noises that you're making now". A few years ago I had the opportunity to hear Francis Fukuyama speak. He was the author of The End of History and a later follow up book. I never knew it before then, but he was one of the founding members of the Neo-conservative movement. It was originally started by him and a group of like-minded sorts around a cafeteria table in some ivy-league college (Princeton maybe?). He went on to talk about how the ideals of what they founded were adopted and warped beyond recognition by the Evangelical Christian community in the U.S. and by other conservatives. What was remarkable about the talk was that at the end, he essentially repudiated everything he had originally written in The End of History.

I remember stories my grandparents told of growing up during the Great Depression. I also remember stories from my mom's family of 7 kids growing up poor in Rochester, NY in the post-war era. Perhaps I've inherited an attitude of bite-down and deal with reality from their history.

Re: United States loses AAA credit rating from S&P

#103

Post by _delirium » Sat, Aug 06, 2011, 1:59 AM UTC

veyron wrote: post #93

ohyes wrote: post #88

Earlier quoted context omitted.

I was under the impression that there were funds that were legally required to not anything lower than a certain value, but those values were much lower than AAA (AA or AA-). Which funds cannot hold anything lower than AAA, and are they really big enough to dump enough US bonds to make a difference?

Some funds strictly cannot hold anything lower than AAA, but most have "investment grade" requirement which is BBB (Baa in moody's ratings) That type of downgrade is very unlikely

The only ones I can find that are strictly AAA are either all-corporate to begin with, or explicitly say that they invest in "AAA-rated U.S. Treasury and agency securities" or similar language. Which is awkward if there is no such thing, but it's not clear it'd require them to sell off, since there's nothing eligible to move to.

Re: United States loses AAA credit rating from S&P

#104

Post by watchandwait » Sat, Aug 06, 2011, 1:59 AM UTC

usaar333 wrote: post #70

latch wrote: post #46

For those who aren't sure why this matters there are two things to note. First, interest will go up. US Bonds are now considered riskier than they were before. This means investors in US Bonds will expect to collect more interest due to the greater risk they are taking. Instead of paying China and Japan 3% (for example) on $1 trilion (each), the US will now have to pay 3.5% (and climbing). Of course, the higher the i…

I doubt it will be that significant. Japan has been at AA- from all rating agencies forever (and has vastly higher debt) and pays lower rates than the US. Besides, as you pointed out there are so few large countries with AAA from all agencies. Besides, there's no new information released today, other than what some analysts at S&P think.

Japan is a nation of savers and has a massive domestic pool of savings. Also, Japan will drop below investment grade within the next ten years as those savers retire.

America, on the other hand, needs to borrow internationally.

Re: United States loses AAA credit rating from S&P

#105

Post by marshray » Sat, Aug 06, 2011, 1:59 AM UTC

keyle wrote: post #86

geuis wrote: post #52

(Reference: http://www.federalbudget.com/ ) Steps to recovery: 1) End all offensive military actions overseas. Finish winding down Iraq and abandon Afghanistan wholesale. These actions have cost several trillion dollars over the last 10 years. We can't get that money back, but we can stop spending more. 2) Defense spending is in the top 3 highest budget expenditures. Cut it by 1 third across the board. Maintain impor…

This all makes good sense and would make a great political party's campaign. The problem is, it wouldn't work. The economy, as small as any small country, isn't a piece of programming. You don't audit and refactor, or rewrite parts and plug it all in. It's made of generations of flesh and bones, all of which have worked their guts out to get whatever it is you're trying to take from them. In a tyranny, maybe. In demo…

Which is why the US was founded as a federal republic.

Re: United States loses AAA credit rating from S&P

#106

Post by veyron » Sat, Aug 06, 2011, 1:59 AM UTC

End of the day, these are the same jokers who were rating junk assets as AAA and completely missed every problem in this financial crisis.

And the fact that moody's still maintains Aaa means that there's a nonzero chance it will have no effect. I hope.

Re: United States loses AAA credit rating from S&P

#107

Post by prostoalex » Sat, Aug 06, 2011, 2:00 AM UTC

mbreese wrote: post #59

TomOfTTB wrote: post #55

Earlier quoted context omitted.

Again this is based on the same logic that people will treat the U.S. Government the same way they'd treat any other person and that's just not going to happen. If the U.S. falls back into recession we'll take everyone with us. Other countries know this. Banks know this. Institutional Investors know this. Increase the interest rate on the U.S. and you'll trigger an increase on the U.S. consumer while exacerbating the…

Some institutions are obligated (by charter or contract) to only buy AAA rated bonds. That's why it's a big deal... Now that being said, I have no idea how this would work in practice.

People mention that a lot, but what specific institutions have that requirement? And haven't they developed some more coherent requirements ever since subprime mortgage bonds proved the system could be gamed?

Re: United States loses AAA credit rating from S&P

#108

Post by geuis » Sat, Aug 06, 2011, 2:00 AM UTC

prostoalex wrote: post #98

geuis wrote: post #52

(Reference: http://www.federalbudget.com/ ) Steps to recovery: 1) End all offensive military actions overseas. Finish winding down Iraq and abandon Afghanistan wholesale. These actions have cost several trillion dollars over the last 10 years. We can't get that money back, but we can stop spending more. 2) Defense spending is in the top 3 highest budget expenditures. Cut it by 1 third across the board. Maintain impor…

What constitutes defense spending nowadays? Is it largely salary payments to current troops? Wouldn't we have to deal with a large unemployment problem in case we laid off a bunch of military employees and told them to go find a job somewhere else? Or is it payment to defense contractors, such as Valley's own Lockheed Martin? Wouldn't this cause a large number of people to be unemployed, contributing to recession?

Is it the government's job to keep people employed for the sake of employing them? No!

There are times in history where government spending can help, like during the Great Depression. The government spent a lot of money on public works projects to help put some people back to work. But this didn't do much to actually end the depression. It was the onset of WWII and the subsequent ramp-up to a war economy that really ended the Depression.

Re: United States loses AAA credit rating from S&P

#109

Post by mark_l_watson » Sat, Aug 06, 2011, 2:00 AM UTC

Yeah, the US deserves a downgrade. What pisses me off is that my wife and I have savings, live within our means, and if you believe Harvard economist Kenneth Rogoff (which I do), there is going to be 5% to 10% yearly inflation for a good while that takes money from savers and basically gives it to debtors.

I am actually sympathetic to some debt forgiveness - it is not the people in need that I am pissed off at. Anyway, it is a mess, and everyone who is worth less than many millions of dollars is going to feel some pain.

I expected this economic collapse to happen after the 2030s - suddenly, after a few years of W. Bush's presidency I realized that the grand plan was to cause the collapse to happen much sooner.

Re: United States loses AAA credit rating from S&P

#110

Post by nerfhammer » Sat, Aug 06, 2011, 2:00 AM UTC

daemonize wrote: post #51

thematt wrote: post #23

Earlier quoted context omitted.

That's because Japanese debt (up to this point) has been primarily financed by its own citizens, life insurance and pension funds. These are more likely to accept sub-AAA rated bonds and support their own government than external investors are.

Japan has no defense investment. 'nuff said.

Yet they still have a debt-to-GDP ratio of 225%