OT: Standard & Poor's Wake-Up Call!

http://www.usatoday.com/news/opinion/editorials/2011-04-18-SampP-kicks-Obama-Congress.htm
Thanks, Richard the Dreaded Libertarian

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Rich, we know that you can't think straight, and there is no need to remind us of the fact once again.
Standard and Poor are one of those credit rating agencies who gave collateralised subprime mortgages good security rating, right up to the time they started failing all over the place.
Now they are telling us that the US governments debts are too high enough and they want to downgrade their security rating, and you act as if the sky is falling?
Standard and Poor are just one more bunch of half-witted bankers, applying rules they don't understand to situations they don't understand.
Their rules - which are largely derived from their right-wing political prejudices - ignore the Keynsian insight that decreasing government spending during a recession makes the recession worse. Since recession is a much more potent source of political disquiet than government debt as such, the US is rather more likely to default on its debts if it tries to reduce them too quickly than it is if waits until the economic recovery has got a bit further.
Right-wing political commentators just love the Standard and Poor warning - unsurprisingly, since it is just their politcal prejudices being aired in another forum - but acting as if they are saying something new or interesting is just plain stupid.
-- Bill Sloman, Nijmegen
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Bill Sloman wrote:

I don't think they ignore that. There is a lag time to consider. The assumption is that the economic indicators show that the recession is over. The assumption is the economy will continue to climb. If that changes and another economic contraction begins the talk of balancing the budget will disappear quickly as it did in late 2008 and early 2009.
-jim
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On Wed, 20 Apr 2011 08:00:29 -0500, jim

==========One of the major problems is that "correctness" of all economic insights depends on the society and conditions in which these are embedded. Change the society, circumstances or conditions and even the most insightful observations and models can and do become not only useless but increasingly counterproductive the more the society, circumstances, and conditions transform.
Keynes's insights and models [e.g. His capstone work _The General Theory of Employment, Interest and Money_ ] are apparently the best currently available for a society-economy ==>based on intensive industrialization, consolidated/standardized mass production, the "economy of scale," homogeneity of society, and relative national economic/financial isolation,<== but that era is at least 50 years in the past. Keynes was a British national, and the perception of Britain as the "workshop of the world" was still widespread. He had a considerable background in History, a good command of statistics, and was deeply involved in government/banking, in contrast to a large number of current economic theorists, quacks, and/or dreamers. http://en.wikipedia.org/wiki/John_Maynard_Keynes (Amazon.com product link shortened)
Another major problem is that the politicians never make it past, nor fully understand, the "General Theory" chapter where deficit spending is recommended to offset the drop in aggregated demand that is posited to be the root cause of recession/depression [at that time] in that the deficit spending was to be for infrastructure and other activities such as conservation measures that would generate an aggregated benefit beyond their cost over their lifetime, not simple make-work spending, i.e. no "bridges to nowhere". The later chapters that suggest government *NOT* engage in major spending programs during the boom cycles to avoid competition for limited resources and price inflation, and indeed to impose higher taxes in the boom periods to both dampen the "irrational exuberance" (to use a later term) and replenish the national treasury for the next down cycle [counter cyclic] were totally ignored.
Analysis of the current situation is greatly complicated by the heterogeneous nature of at least the American economy/society, which now encompasses the full range from subsistence agriculture to transnational corporations and a huge financial "services" sector of doubtful social or economic utility/benefit. This heterogeneity complicates not only analysis, but measures taken to assist/correct "problems" for one economic sector/level/interest inevitably result in damage to another economic/sector/level/interest.
-- Unka George (George McDuffee) .............................. The past is a foreign country; they do things differently there. L. P. Hartley (1895-1972), British author. The Go-Between, Prologue (1953).
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"F. George McDuffee" wrote:

Washington is what it is. I don't think "correctness" plays any role.

A lack of aggregate demand does negate economic growth That incite is as old as money (or maybe older) Anybody trying to sell something that nobody wants will figure that out

The vast majority of US consumer spending could be classified as "bridges to nowhere". Why do you expect govt spending to be different?

What is the current relevance of that paragraph When you are looking at more than 10% unemployment and businesses operating at 60% of capacity?

If it helps your analysis at all the Amish around here seem to be doing swell
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"Correctness" in this case refers to the accuracy of the insights or analysis.

If the ultimate consumers buy it, it's the end product, and it has no other economic value but the perceived utility value on the part of the consumer. If the government spends money to stimulate an economy, it's not producing things for the ultimate consumer (unlike, say, the government service of providing a community swimming pool, or a park). It's trying to (a) maintain incomes and consumption, or (b) provide a service that encourages private companies to take over, such as spending money on basic scientific research, or (c) provide infrastructure that will encourage private enterprise or reduce the costs of enterprise.
You really have to isolate those things from producing for consumption to make policy decisions. Deficit spending for stimulus has to do something that supports economic growth or prevents further recession, even if it's just a temporary shot, like paying unemployment benefits, that keeps consumption afloat in order to prevent deflation.
Pet rocks are a perfectly legitimate consumer product. They are not a legitimate use for stimulus money by the government itself. <g>

The relevance is that we're not in a boom cycle. Neither are we in a recession. We're in a state of low employment but modest economic growth.

They amount to a countercyclical anecdote, with no numerical significance.
--
Ed Huntress



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Gunner Asch wrote:

I was not expressing my opinion on the state of the economy
that was an explanation of what the politicians in Washington believe and it is their belief that the recession is over that is behind the current drive to reduce the deficit
If there is another economic downturn this talk of reducing the deficit will very quickly evaporate
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On Sat, 23 Apr 2011 14:08:59 -0500, jim
<snip>

=======The talk will disappear and deficit *ELIMINATION* to produce debt reduction will pounded up Washington's nose with a 10 pound maul by the creditors. See what happened in Ireland, Greece, Iceland, etc.
Refusal to increase the debt limit will be a disaster, but the choice is now between a controlled disaster now resulting from the refusal to increase the debt limit and an utter catastrophe in the near future when the U.S. government is unable to borrow money except on extortionate terms, e.g. 16% APR for 90 day notes such as Greece.
FWIW -- the so called "economic upturn" should be carefully examined as it does not seem to be based on solid economic growth, i.e. the production of "real" goods and services, but rather on the "speed" or "crank" of US government spending.
http://www.usatoday.com/news/nation/2011-04-26-government-payments-economy-medicare.htm <snip>
Americans depended more on government assistance in 2010 than at any other time in the nation's history, a USA TODAY analysis of federal data finds. The trend shows few signs of easing, even though the economic recovery is nearly 2 years old.
A record 18.3% of the nation's total personal income was a payment from the government for Social Security, Medicare, food stamps, unemployment benefits and other programs in 2010. ==>Wages accounted for the lowest share of income 51.0% since the government began keeping track in 1929.<={emphasis added} <snip>
-- Unka George (George McDuffee) .............................. The past is a foreign country; they do things differently there. L. P. Hartley (1895-1972), British author. The Go-Between, Prologue (1953).
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"F. George McDuffee" wrote:

So you say, but its all empty rhetoric based on nonsense

When the day comes that nobody wants to give the US Treasury money at low interest that will be because there are better places to invest money It would mean money can be invested in businesses enterprise that create jobs
right now investors are not willing to invest in businesses because businesses can't sell their products and services. IOW, there is no point in investing in businesses

Maybe.... maybe not That is why we have the current dog-and-pony show in Washington
The economy will either go up or go down or stay the same if it stays the same the theatrical performance will continue If it goes up the deficit hawks will win If it goes down the deficit doves will win
It's not a very complicated plot If you can predict the future you could make a side bet on the outcome

http://www.usatoday.com/news/nation/2011-04-26-government-payments-economy-medicare.htm
What does that tell you? How did arrive at your equation "old-folks-NOT-being-flat-broke" = "sky-is-falling"
If funneling money into the hands of old folks creates too much aggregate demand that the economy can't handle Then yes. At that point there will be a problem But you have provided no evidence that will ever happen

You are defending policy that will lead to "debt-deflation" (look it up) People in Washington are a bit crazy but Nobody in Washington is that insane

That is not a problem. It is not even relevant Oh sure some 80 yr old geezer might be greeting you at wally mart if you were to cut his pension to the bare bone but I don't see the giving the old geezer a break as taking huge bite out of the economic potential of the country
This is the problem --> Americans are hoarding their money
The consumer not spending enough to keep businesses in business - its that simple Economists call this lack of Aggregate Demand And the lack of demand was huge in 2008 and is only a little better now
Ironically, most of the current lack of demand is probably due to fear mongering (like you do, for instance)
And if you take away more income (like you want) consumers will be spending even less Can you say "vicious downward spiral"
-jim
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Gunner Asch wrote:

Hell, don't offer these guys a bridge - they'll expect to have it bought for them by the taxpayers! =:-O
Thanks, Rich
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You and Gunner are in a perpetual recession, Rich. Maybe a depression. The rest of the country is on the way out.
Do you know the meaning of "recession"? It doesn't mean your hairline is headed south.
--
Ed Huntress



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Bill, we know that you can't think straight, and there is no need to remind us of the fact once again.

It took S & P a while to wake up to the problems with mortgages, but they did. Which kind of says if S & P realizes something, it is pretty much already happened. So you want to ignore S & P 's warning. Brilliant.
Dan
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" snipped-for-privacy@krl.org" wrote:

What is it you think The S&P warning means? All they said is the deficit is too high for current economic growth and current growth projections
If economic growth stops and the economy turns downward again (and it may well) they will be the first to call for more govt spending
The people who can't think straight are the ones who think that the S&P warning means we are in a recession and that the recession was caused by deficit suspending
The statement from S&P said they believe the economy is currently growing at 3% and will soon have 4% growth therefore the govt should stop behaving as if the economy was in a recession was not growing.
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Did not S & P say that the reason for the warning is that they think the odds of legislation being passed that reduces the deficit is low.
Dan
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wrote:

Yes, exactly. They maintained the AAA rating for US Treasury debt, but they don't think the government will get its act together to solve the long-term problem.
--
Ed Huntress



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Ed Huntress wrote:

The negative outlook meant there was a one-in-three chance the world's largest economy could lose its AAA rating within two years.
http://www.guardian.co.uk/commentisfree/cifamerica/2011/apr/20/standardandpoors-creditrating
In November 2010, China's Dagong Global Credit Rating Company (one of that country's major rating companies) downgraded US debt. Should we be grateful that it took S&P only six months to catch up?
Oh, wait . the timing of S&P's announcement was likely not driven by the facts - any more than its credit ratings on mortgage-backed securities proved to be. Since 18 April was the last day to file 2010 tax returns, it was a good moment to spin another scary instalment in the conservative campaign to justify cutting government social spending. S&P may be rampant in its interests, but it hardly seems conflicted about them.
--
John R. Carroll



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Bill Sloman wrote:

Well, we'll soon find out, won't we?
And you're a damn foreigner, what do you care about America anyway? Don't you live in some socialist country, where you should be fat and happy, if ignorant? I.e., one of Lenin's "useful idiots."
Good Luck! Rich
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You should have bought on the news Rich. S&P is now 2.25% higher than Monday morning.
http://chart.finance.yahoo.com/z?s=SPY&t=5d&q=&l=&z=l&p=s&a=v&p=s&lang=en-US&region=US
-Bill
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http://www.google.com/url?sa=D&q=http://www.usatoday.com/news/opinion/editorials/2011-04-18-SampP-kicks-Obama-Congress.htm
Our view: S&P gives Obama, Congress a kick in the pants When global investors turn hostile to a governments borrowing, it can be sudden, furious and far from pretty. Several deeply indebted European countries, including Spain, have unemployment rates over 20%. And even Ireland, which was seen as an economic model a few short years ago, has a rate approaching 14%. Brazil paid its debts of the 1980s and early 1990s with hyper-inflation that crushed peoples savings and standards of living.
OTHER VIEWS: 'Both sides can come together' And the United States? No one knows exactly how enforced austerity would play out here, but the debt rating agency Standard & Poors gave everyone a new reason to think about it on Monday by changing its outlook for U.S. Treasury debt from stable to negative.
The action essentially puts America on notice that the seemingly untouchable AAA rating on U.S. Treasuries is in jeopardy. It comes just days after President Obama and House Republicans unveiled their respective deficit reduction plans, showing how unimpressed the reports authors were. While S&P makes no judgment on either plan, it sees a material risk that the two sides wont be able to reach a deal, not by June, as Obama has urged, or even by 2013.
Thats not exactly surprising news. But an actual downgrade would be shock therapy.
It would increase borrowing costs for home buyers and businesses, as well as for government. It would drive down the value of the dollar, add inflation to the nations litany of woes, and possibly ignite another global credit crisis like the one that wreaked havoc in 2008.
Such a downgrade would be far more harmful to lives and livelihoods than the fallout from making the spending cuts and tax hikes necessary to avert it. But both parties, eying the next election, seem to have concluded that a downgrade would be preferable. It would not involve upsetting key interest groups (the no-tax-hike crowd in the GOP and the hands-off-my-benefits constituencies among Democrats) and each party could blame the other.
This failing has already been noted by some of the worlds shrewdest investors. Pimco, the massive bond mutual fund company based in California, has pulled out of Treasuries and has even begun shorting them. And a number of foreign countries, including China, have indicated a desire to cut back on buying Treasuries, gradually terminating the dollars role as the worlds reserve currency the status that allows the U.S. to keep on borrowing without suffering consequences like those in Greece and Brazil.
The S&P report sets 2013 as a threshold year for a possible downgrade if no action is taken. This could be seen as an excuse to do nothing on the debt in the next year-and-a-half except make it the prime issue of the 2012 election. But a better interpretation would be as a clarion call for the two sides to take at least some action now. By waiting until 2013, Americas leaders would raise considerable doubts as to whether they could get something done. That wouldnt leave them much time to adjust to the new political landscape and strike the kind of deal that has alluded them for decades.
Whats more, whos to say that a downgrade by S&P or some other agency might not come sooner, perhaps right in the middle of a presidential election when politicians are least able to take action? Once sentiment starts to turn, it has a way of snowballing.
In 2007, for instance, Federal Reserve Chairman Ben Bernanke said that impact of the subprime lending crisis was contained. That statement was correct, until it wasnt. A year later, the subprime crisis became a financial panic that pushed the world to the brink of another depression.
This time, Bernanke is already on record as saying a debt crisis like the one unfolding in Greece (yes, Greece!) could come here.
How many more signals will it take? Is it not obvious that action is needed very soon? Perhaps this unwanted missive from Standard & Poors will help light a fire under the feet of of our elected leaders.
Reposted under the FAIR USE exceptions to US copyright law, for discussion purposes and not for profit. - Greg
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