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United States loses AAA credit rating from S&P

reuters.com

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

#81

Post by DasIch »

TomOfTTB wrote: post #61
mbreese wrote: 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.

I'm sorry but that's bull. Anything can be changed. Contracts can be revised and even charters can be updated by a Board of Directors. If you hold a significant amount of U.S. Bonds you aren't going to ditch them on S&P's say so. You're going to call a meeting of the Board of Directors or Trustees or whoever and decide based on your own judgement. The whole point of a rating agency is to provide you with research tha…

You are assuming that enough people have an actual interest in letting the U.S. remain in the position it is now or that a recession in the U.S. will affect the rest of the world enough to matter.

While that may have been true a couple of years or may be even months ago, I'd say that this is anything but certain. There are a lot of people and government through out the world who would like to see the U.S. weakened.

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

#82

Post by pauldino »

quandrum wrote: post #63
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…

Why would you cut Social Security? It's in no danger. And frankly, medicare wouldn't be if we killed the payroll tax cap. I never understood why it's ok for payroll taxes to be regressive.

The Medicare portion of FICA isn't capped, only social security is.

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

#83

Post by jrockway »

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.

Exactly. The big banks do their own research, so what S&P thinks is largely irrelevant. We have an entire division devoted only to US treasuries.

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

#84

Post by pyoung »

winestock wrote: post #39
daemonize wrote: post #31

Earlier quoted context omitted.

What about China bailing. How bad does it need to get before they decide to pull out?

Old joke: If you owe the bank a thousand dollars and you can't pay it back, then you have a problem. If you owe the bank a billion dollars and you can't pay it back, then the bank has a problem.

I think the original joke was a million dollars not a billion dollars, but I guess with inflation...

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

#85

Post by georgieporgie »

mdkess wrote: post #56

I am not American, and here's what I don't get: America can borrow money right now at 1.5% for five years. Why is there such a clamour to stop? I would hope that the government would be able to get better than 1.5% return with the money - if the CEO of any company chose not to take on debt at this rate they'd get fired. It seems like all of the media coverage is glossing over this.

There's a lot that doesn't make any sense. As you say, interest rates are low. Plenty of people are out of work. To me, that says, "perfect time to build and repair infrastructure!"

Whether you believe FDR's New Deal helped or hindered recovery from the Great Depression, the simple, business-oriented financials of it would seem to indicate that right now is the time to be building roads, trains, dams, nuclear plants, etc.

Instead, we cut funding to things which may pay off later in order to funnel money into which have an inevitable negative rate of return, like imprisoning people, security theater, and killing people on the other side of the globe.

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

#86

Post by keyle »

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 democracy, you have no chance of getting anywhere which such an overhaul.

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

#87

Post by watchandwait »

quandrum wrote: post #63
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…

Why would you cut Social Security? It's in no danger. And frankly, medicare wouldn't be if we killed the payroll tax cap. I never understood why it's ok for payroll taxes to be regressive.

Social Security is supposed to be a pension program, not an income redistribution program. So you are making "contributions", not paying taxes, in the official lingo.

Of course the program is most regressive for younger workers, who pay the most and will get the least in return.

Social Security is in serious trouble, by the way, although it is not the driver of the current budget crisis. In just a couple of years the program goes into the red, and increasingly so as more boomers retire. The unfunded liability is around $8 trillion. That's serious money.

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

#88

Post by ohyes »

jpdoctor wrote: post #62
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…

> 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. It's not a matter of how "people" treat it. Many funds are prohibited from holding anything other than AAA. Those folks will now be selling bonds. For those that haven't looked at the math of bonds: When the price of a bond goes down (as it does when there…

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?

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

#89

Post by joezydeco »

quandrum wrote: post #63
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…

Why would you cut Social Security? It's in no danger. And frankly, medicare wouldn't be if we killed the payroll tax cap. I never understood why it's ok for payroll taxes to be regressive.

"Put another way, the Federal Reserve says that the nation’s net wealth is about $57 trillion. That figure would have to be $18 trillion larger to generate enough additional G.D.P. to pay Social Security benefits without making anyone worse off in the future through higher taxes or lower benefits."

http://economix.blogs.nytimes.com/2011/05/17/the-real-social...

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

#90

Post by jerf »

j_hightower wrote: post #80
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…

"Given China's rise, its wise long-term to keep a presence in the region." Why? China will surpass the United States in soft and hard power eventually. This is demographically and economically inevitable. Even sooner, if not already, China will become an unshakable hegemon over all of Asia. So why fight it in the most expensive and futile ways possible, i.e., by maintaining the fiction that we will be able to exercis…

"This is demographically and economically inevitable."

Oh, no it's not. First China has to hold together over that time frame. This is feasible... this is not inevitable. There's a lot of tensions over there. Then even if they pass that test, there's other things they're going to have to deal with.

Right now, there isn't a single world power that's looking to be "inevitably powerful" in the next 50 years, it's really "anybody's game".

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