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United States loses AAA credit rating from S&P

reuters.com

291–300 of 518 posts

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

#291

from the press release: "The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. "

There has been a complete lack of leadership from the Congressional Democrats on this issue. They haven't produced a budget plan in nearly three years, while borrowing 40 cents of every dollar spent during that time. I'm not a partisan-- George Bush's runaway spending contributed a great deal to the current predicament. But the basic Congressional oversight and operating under a budget hasn't happened the last couple…

There has been a complete lack of leadership from the Congressional Democrats on this issue. They haven't produced a budget plan in nearly three years, while borrowing 40 cents of every dollar spent during that time.

Uh, you are merely parroting inaccurate GOP talking points, and I think we can be a little more accurate than that here.

First of all, the House and Senate easily passed Obama’s first budget on the president’s 100th day in office. That budget measure, however, did not include a single GOP vote, a harbinger of the lack of bipartisanship to come. From 2009 to January 2011, Republicans forced more than 90 “cloture” votes, which require 60 senators to agree to limit debate (ie stop a filibuster) on a measure.

Pretending that there was no Democrat "budget plan" for 2010 is disingenuous at best. Ongoing Democrat "plans" were continuously on the docket:

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=11...

Democrats did not have anything like a filibuster-proof majority in the Senate, and Republican Senators were quite open with their threat to filibuster any legislation until the “Bush-tax cuts” were extended.

http://www.nationaljournal.com/congress/gop-will-filibuster-...

"We write to inform you that we will not agree to invoke cloture on the motion to proceed to any legislative item until the Senate has acted to fund the government and we have prevented the tax increase that is currently awaiting all American taxpayers,” said the letter, which was sent to Senate Majority Leader Harry Reid this morning."

“The true effect of this letter is to prevent the Senate from acting on many important issues that have bipartisan support,” Reid said this morning on the Senate floor. He said the letter codifies a GOP strategy of delaying action “on critical matters, then blaming the Democrats for not addressing the needs of the American people. Very cynical, but very obvious, very transparent.”

And imagine that, here we are in 2011....

Of course, filibuster has been used by both parties, but these tactics by Republicans accelerated drastically when Dems took over Congress late in Bush's presidency. As even the conservative American Enterprise Institute noted, Republican filibusters were used increasingly to obstruct legislation:

http://tpmdc.talkingpointsmemo.com/2010/01/the-rise-of-clotu...

"It is the most striking in history," American Enterprise Institute resident scholar Norm Ornstein told TPM.

"What happened, Ornstein says, is that during the last two years of President George W. Bush's second term, Republicans offered "no initiatives to speak of."

"The initiatives were coming from the Democrats, and the Republicans wanted to kill 'em, or slow things down. Republican filibuster threats, Ornstein said, were "like throwing molasses in the road."

"Still, Ornstein largely attributes the stark rise in cloture motions in the 110th Congress to Republican delay and obstruction tactics."

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

#292
post #13

One thing to keep in mind is that many institutional investors, including those in Europe, are required to invest exclusively into triple-A instruments. This downgrade means a major sell-off of US bonds and whatnots currently held by such investors, and that could have an interesting avalanche effect.

us government bonds have more recently been excluded from this rule.

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

#293
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…

1. 85% of the $14 Trillion deficit over the past 3 years was not any items you described but these items: -TARP Until we decide to have the bank lobbyists pay for their transgressions we will continue to be in deficit no matter what entitlement cuts are passed. Two options: Right now individuals pay 2/3rds of gov expenditures not corporations. 1. Reform corp tax law. There should be no Google or MSFT only paying 5% i…

>85% of the $14 Trillion deficit over the past 3 years was not any items you described but these items: -TARP

TARP was $300B, of which the government will recover all but $25B, according to the CBO. The "bailout" in general (considering all acts that fall under that umbrella term) consisted of about $3.5T in payouts, the vast majority of which is expected to be recouped.

Also, you're confusing debt with deficit. The debt is $14T, the deficit is just over a billion. Your 85% figure appears to have been drawn from your sphincter.

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

#294
WOW....talk about CAJONES! I must tip my hat to S&P. This one...just WOW.

I mean, I am not a conspiracy theorist by any stretch of the imagination, but I just never imagined that they would be able to pull the trigger.

All it takes is some 'investigation' by the US Treasury into S&P and that's it....game over. Not that I think the US Treasury will retaliate....but WOW. I never thought they would take this step.

Good for them.

Double-dip recession, here we come.

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

#295

Earlier quoted context omitted.

You take the Keynesian view. It's difficult to discuss this in more than a soundbite, but the Hayekian view is well explained by these two videos: http://www.youtube.com/watch?v=d0nERTFo-Sk http://www.youtube.com/watch?v=GTQnarzmTOc Well worth watching if you haven't seen them. In short, the opposite/Hayekian view contends that taxation is seizure of resources from profitable/efficient entities and redistribution tow…

The Hayekian view here seems patently false according to Moody's research firm, which determined in 2008 that the most cost effective stimulus was food stamps and the least effective was business incentives such as tax breaks for buying new equipment. http://money.cnn.com/2008/01/29/news/economy/stimulus_analys...

Oh yeah, reference Moody's, they did such an awesome job rating mortgage securities a few years ago.

My own wholly unfounded reasoning goes as this: give a broke guy some food stamps, he'll spend it on food. So the government is essentially buying this guy food. Food and groceries happen to be some of the the lowest-margin sectors of the economy - Safeway's operating margin hovers a little under 3%. So yeah, the guy will spend it right away, but you're not making much money out of this. The broke guy just wants to feed himself.

Give that same money to someone who's actively trying to make more money out of it (e.g, a business), they have much more incentive to use it efficiently.

I'm a SF liberal, I totally believe feeding the poor should have government support. But it makes a poor economic argument to me.

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

#296
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…

the actual step 1: admit you have a problem. the US still spends with the attitude that it is a rich country. it needs to start spending with the attitude of a country that is rapidly going broke. of course, this can't happen because any politician who doesn't parrot the "America is the greatest country in the world" message gets ousted.

Why do they get ousted? Surely you'd vote for them?

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

#297
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…

Disproportion between givers and takers of money makes democracy weak at this. In democratic country, bigger and poorer group can always take some money out of smaller and richer group.

See http://en.wikipedia.org/wiki/File:Income_Taxes_By_Country.sv... - all top countries are democratic.

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

#298
post #65

An answer to the question we're all wondering- "What happens now" answered well in a planet money from a couple of weeks ago: http://www.npr.org/2011/07/18/138164761/what-happens-if-u-s-... TL;DR - "I'm not sure it will have any impact. When you look at the bond market — 10-year U.S. Treasuries, for example — where is it today? In the light of all this hype about debt ceilings and possible defaults, it's at 2.93 toda…

The reason yields have been so low is because a) there is no other 'safe haven' for investors to flock to, and b) the markets generally didn't anticipate a downgrade.

A downgrade, even if the markets don't raise Yields, can be catastrophic because many financial institutions (mutual funds, insurance companies, unit trusts, etc.) can only hold AAA rated securities in their portfolios - and some central banks can only hold AAA rated securities as collateral in some situations.

So, legally, they will not be able to hold on to American gov't debt, even if they wanted to. The mere fact that a ton of people will be flooding the market with debt, will push up yields and that will lead to other catastrophic consequences.

I expect that the Fed will buy a ton of bonds to push down yields and keep the Treasuries Interest costs low - but they will have to print a ton of money to do that....which will lead to inflation, which leads to higher yields which leads to higher interest costs, and creates a crazy cycle.

You get the idea.

However, that's just theory - in a perfectly balanced global economy that's not fragile. In this global economy, I suspect that there might be a concerted effort to loosen standards to prevent a mass exodus out of US Treasuries, but at least this sends a strong signal that the ratings agencies are serious.

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

#299
post #59

Earlier quoted context omitted.

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?

One example that comes to my mind is that Indian IPOs can be subscribed by foreign institutional investors using AAA bonds (they just show this as backing instead of paying the full price in cash before getting any shares allocated). I think now investors can only use the bonds of others countries.

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

#300

Earlier quoted context omitted.

First, both parties have raided Social Security, not just Republicans. In fact, both parties have been complicit in the government's financial misfeasance for a long time. Second, you mention the money "to pay back the workers who contributed." There was never any money to pay back. Social Security was always a pay-as-you-go system. Current revenue pays for current appropriations. There was never any "trust fund," an…

1. Social security reform was a core part of the Democratic platform in 2000. "I will keep Social Security in a lockbox, and that pays down the national debt and the interest savings I would put right back into Social Security." (Al Gore, Oct 4, 2000). Put simply, the Democratic policy aim was to divert the surplus into paying off the debt while preventing lower interest rates from spiking government borrowing/spendi…

I think it will take more than rolling back the Bush tax cuts. If no entitlements changes are made, it would take roughly twice the GDP of the entire world:

"Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent." –Richard W. Fisher, Dallas Federal Reserve President, May 28, 2008 [1]

1. http://www.dallasfed.org/news/speeches/fisher/2008/fs080528....

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