On second thought, maybe we will see rates go higher sooner rather than later......S&P cuts U.S. outlook to negative on fiscal worryNEW YORK (Reuters) - Standard & Poor's on Monday downgraded its credit outlook for the United States, citing a "material risk" that policymakers may not reach agreement on a plan trim its large budget deficit.While the agency maintained the country's top AAA credit rating, it said that authorities have not made clear how they will tackle long-term fiscal pressures.I actually think this may be a positive. This may be just the impetus needed by our "out of touch" politicians to come together to do the right thing rather than continously posturing for political gain and re-election.Obama Adminstration, Representatives, and Senators are you listening?
Please explain how the U.S. is at risk of default, when we have the ability to print money?
Prophet43, The wire release you should have linked is this for having greater long-term impact than S&P, once again, jaw-boning a dithering Congress about their inability to cut their deficit-spending. The five countries [Brazil, Russia, India, China, S Africa] agreed to expand use of their own currencies in trade with each other — an important step toward putting the dollar into a new downsized place. One key influence is the annual expansion of China's trade volume with other core countries by 40% in 2010 — and the buoyancy looks set to continue. The BRICS' state development banks, including the China Development Bank, agreed to use their own currencies instead of the dollar in issuing credit or grants to each other — and they will also phase out the dollar in overall settlements and lending among each other. http://finance.yahoo.com/banking-budgeting/article/112563/BR...Once the US dollar is displaced as the world's reserve currency, bond investing will become much more interesting and much more fundamentally driven. Charlie
Dawg:I'm not sure I understand the point of your question but I'll try to answer.If you want to restrict the definition of default to simply not paying interest and principle when due then you are corect, the US is un-likely to default.However, if the US wants to print trillions of dollars to make up for our crack addict-like addiction to spending, and thereby pay our creditors with dollars worth half (or much less) of the value of the dollars when the debt was issued and purchased by the investor....then I consider that a "soft default".Based upon your question....."Please explain how the U.S. is at risk of default, when we have the ability to print money?"......every country that has its own currency (and can print money at will) should be rated AAA. Is that correct? I think not.To be AAA, I think there should also be some reasonable assurance to the investor that his principle will not be PURPOSELY de-valued away by the soveign issuing the debt.Unfortunately the overwhelming majority of our citizen's and our government leaders that have shown no interest in fiscal discipline fail to realize that the fantastic standard of living (and influence in the world) that US citizens have enjoyed for at least 70 years will be nothing more than a fond memory if we don't correct our crack addict-like addiction to spending and running up deficits.The article that Charliebond's linked to is a clear sign that many of the important countries in the world have no interest in continuing to increase their stake in our soon to be highly de-valued dollar. Zimbabwe, here we come.
"Well. the latest country to "sign up" with China is New Zealand. That now makes most of Asia, Belarus, Argentina, Brazil, and New Zealand, as countries that have signed these agreements with China. It's just the beginning, folks. But don't just let this news slip by, for in less than 10-years, people will look back and wonder how the renminbi became so well distributed and wide spread in operation." from today's The Daily Pfennig, a free currency newsletter published by Everbank that covers issues important to bond investors as well, like what everyone's else's central bankers are doing about money policy compared with the Keynesians in the US.
Here is an interview that has some further thoughts on currencies other than the US Dollar serving as world currencies:http://www.salon.com/news/economics/index.html?story=/tech/h...For what it's worth . . .
His other papers are worth reading, too. E.g, http://www.econ.berkeley.edu/~eichengr/why_dollar%27s_reign_...
Thanks for all the replies. I do not believe that the U.S. will ever stop servicing our debt, although inflation may be a friend in this effort.But I do respectfully disagree the "our citizen's and our government leaders that have shown no interest in fiscal discipline fail to realize..." I do believe our citizen's are beginning to get our problem, but I do agree that our leaders do not get it, yet.
Dawg said....."But I do respectfully disagree the "our citizen's and our government leaders that have shown no interest in fiscal discipline fail to realize..." I do believe our citizen's are beginning to get our problem, but I do agree that our leaders do not get it, yet."I'd like to continue the friendly dialogue.....What makes you think our citizens "get it"?The polls I've seen on the topic un-mistakeably suggest that the overwhelming majority of our citizens don't get it. Sorry no references to point you to.The findings of the polls have suggested things like....(a) We can solve our fiscal challenges by "trimming around the edges"(b) We can solve our fiscal challenges by eliminating fraud and abuse(c) Cuts to Medicare are NOT needed(d) Cuts to Social Security are NOT neededThe serious studies I have seen excerpts from make it clear that there will need to be revenue increases (i.e. some form of tax increases)...AND...cuts to essentially every part of the budget....Medicare, Social Security, Military Spending, and ALL discretionary spending. It's not even unthinkable that budget items that are seen by all as essential such as education which most including myself already see as underfunded will need to be cut in some fashion.For 2011, we expected to have a fiscal year deficit of something like $1.5 trillion. Our total debt to date (not including unfunded social security and medicare obligations) is slightly more than $14 trillion.Combine all of this with the idea that many/most of the economists and great thinkers in this country believe our nation is in for a period of prolonged higher than trend structural un-employment and slower than historical trend GDP growth and you can see the problem. Further, the current interest payments on our debt are quite managable due to the extremely low coupon rates on the majority of our oustanding debt. If our borrowing costs in terms of the coupon rate on new debt used to refi maturing debt increases significantly the problem compounds. So why are so many citizens not fully aware of the seriousness of our current predicament? I think you can blame a lot on the lies (half truths at best) regularly used by most of our political leadership for the purposes of political gain.The (intelligent) Republicans know that tax increases have to be part of the solution and yet that is a non-starter due to party's need to "play" to its political base.The (intelligent) Democrats know that dramatic spending cuts have to be part of the solution and yet that is a non-starter due to the party's need to "play" to its political base.Both parties are guilty of not speaking the truth to the public about Social Security and Medicare.
Prophet43, As you suggest, most “reasonable” people argue that both revenue increases and benefit cuts are needed if the budget is to be balanced. In other words, with more taxes and a little less guns and butter, the budget could be balanced. So this is the question I ask is this: If we cut nearly all the guns out of the budget, could we keep the butter and not raise taxes? According to the CBO, US Gov’t revenues for 2011 are projected to be $2.2 trillion compared with $3.8 trillion of spending, or a deficit of $1.6 trillion. According to various anti-war/anti-empire sites, total military spending for the US in 2011 is projected to be $1.2 trillion. Do the math. War spending (it isn’t defense spending) is 54.5% of all available revenues, or just a tad more that the next 15 to 20 countries in the world spend in aggregate on “defense”. Guns, or butter? It don’t make me a lick of difference which the US citizenry chooses. But I would like it put to a vote whether we play empire abroad or buy a bit of prosperity and security here at a home, instead of the false choice of cutting infrastructure and social support unless taxes are raised. Guns, or butter? This country can afford one or the other and cut taxes to boot. But it can’t do all three. So, although the debate is framed in terms of numbers, it really is a debate about values, and it’s a debate that the rate-payers are being excluded from. How many people still think the US invasion of Iraq and Afghanistan were good ideas? How many people think that garrisoning 1,300 military bases around the world makes us safer here at home? How many people had the chance to vote on the US overthrow of the democratically elected presidents of Guatemala, Iran, Chile, etc? Guns, or butter? An empire, or a democracy? Which one do you want your tax dollars to buy? Charlie
I saw 2 polls this past week. Poll 1 ask "Do you think the government should redistribute the wealth in the US?" No surprise, most people said no. Poll 2 ask “Do you think we should all share in the pain of paying off the debt?” Most people said yes.And yes I agree that we must cut spending and increase revenue. Even Alan Greenspan is in favor of eliminating the Bush tax cuts. The trick is IMHO to execute cuts that will help our nation. I would put everything on the table, but we need to have some common sense. We should IMHO go a little easy on things that will help us regain our position in the world. One example is our need to improve education.
Just a question, is this the same S&P that rated all of the derivatives that caused the ongoing financial crisis so highly?And we give a rip because?PF
Charlie: 'Guns, or butter? An empire, or a democracy? Which one do you want your tax dollars to buy?'Is it really open to democratic choice? Can any amount of common sense from us common folks compete against the massive war-mongering machine that's sucking those tax dollars out of Washington like those 'War of the Worlds' juggernauts?Just as an example, Pentagon's hottest new toy, the F-35, is currently expected to cost nearly $1 trillion. That's more than the GDP of Australia!http://www.theatlantic.com/national/archive/2011/03/the-f-35...This for a country that can't figure out how to keep its social benefit promises to its aging populace? Or give its people and their businesses a level playing field in competing against much lower taxes globally?I thought we were supposed to get a post Cold War dividend because the hotheads of the world would cool off enough to at least slow down the arms race. I guess the Pentagon and its shills in Washington never got that memo. -------------------------Global Gains Home Fool
PF: 'Just a question, is this the same S&P that rated all of the derivatives that caused the ongoing financial crisis so highly?'Valid question. Very different context, though. Since governments and their institutions tend to be major buyers of sovereign debt (case in point, US debt) their only independent third party source of a rating is the likes of S&P and Moody's.Ratings agencies did a lot of wrong before, during and after the last crisis. One was their reliance on data which didn't factor in the last housing debacle, resulting in 'trees growing to Heaven' assumptions and outcomes.With sovereign debt, their track record is less suspect, partly because their models are built on decades of multi country data. In fact, till very recently, the slightest frown from S&P or Moody's could itself precipitate a sell off in many foreign markets.As a result, they became increasingly gun shy about issuing any kind of non-positive views on any country. As for the US, I think they were afraid of becoming pariahs just for raising the slightest doubt about its fiscal sanity, which explains why their latest 'outlook' hardly came as a surprise to any body in the financial markets.-------------------------Global Gains Home Fool
What the S&P has to say about US debt is only of relevance to the traders who will trade on it. No one takes the rating agencies seriously for actual evaluation of credit-worthiness. They do have an impact on funds and institutional investors that have rules related to ratings, but no one with any real interest in the bond market would rely on them.As I recently pointed out, my community has a AAA bond rating, which is because some wise-guy sits in his office crunching data he gets fed (from the reports apparently including using optimistic spin) and completely oblivious to the intent of officials to invest in a project 100% guaranteed to bankrupt the city (with only a few wet-blanket citizens standing in the way).We don't need the S&P to understand the US deficit and the need to bring it under control, although there is debate as to how quickly given the fragile economy. We know the Republican push to cut domestic programs they hate anyway is irrelevant to cutting the deficit. We know it will be impossible to cut the deficit sufficiently without reversing tax cuts (which includes to middle class folks like me), which will need to include eliminating the special rate for capital gains and dividends, which is where the wealthy get much of their income (as Warren B. emphasizes). We know that the so-called social security deficit is just an attempt to kill SS by those who have always hated it and who don't want to pay back the trust fund on schedule, because that would force tax increases on the rich. The trust fund more or less worked for its purpose of SS cash flow through the boomer retirement, and the post-boomer retirement actuarial adjustment is trivial, unless you fraudulently project it to infinity. I would love to say that the deficit could be solved by eliminating wasteful military spending and actions, but that alone won't do it, although there is a lot of wasteful spending on the military (and on so-called homeland security. We even know how to cut health care costs: professional health care economists actually have viable models. But it won't be by giving yet more power to insurance companies to ration health care, and the single largest savings would come from "death panels," i.e., actually encouraging people to engage in end-of-life planning, because when forced to think about their own mortality rationally, most people opt for death-with-dignity, which also happens to save a lot of money.
Is it [military spending] really open to democratic choice?TMFCog, Yes, each of us does have a voice in the matter by how we vote. But when cuts to US-based, military bases are proposed, or cuts to huge hardware projects are proposed, who protests the loudest? The rank-and-file tax-payers whose whose jobs would be cut. So the voting-public might not like to spend for war (err, defense) when the question is put to them broadly, few vote against it on a local level, because they like the indirect benefits, and they don't understand they are doing make-work jobs paid for with borrowed money, which is fine with me. The faster the US spends itself into bankruptcy, the sooner the rest of the world will have a chance to achieve genuine peace. Charlie
Lokicious, Sir.Contrary to your claims of their irrelevance, what the S&P has to say about US sovereign debt matters to all investors, both domestically and globally, as anyone with any real interest in the bond market knows. Yes, the three, officially-sanctioned rating-agencies have erred on occasion. Yes, in this instance of putting the US on Negative Credit Watch, they are 10-15 years late. But their opinions matter to all investors, and the fact of US being placed on Negative Credit Watch will impact interest-rates for everyone, some negatively, some beneficially so, as anyone with a real interest in debt-markets understands. What can be known with a high degree of certitude is that S&P won’t actually down-grade US debt, nor will Moody’s, nor Fitches. The major three are simply positioning themselves to achieve a win-win for themselves. If the Congress doesn’t enact serious budget reforms and a recession/depression ensues, they can say, “We warned you.” If sufficient reforms are enacted to kick the debt can down the road a bit further, then they can again claim victory. My experience with bond-ratings is this. Those who complain the loudest about the rating-agencies cannot do their own credit-analysis. So they whine that “We wuz tricked; we wuz robbed; we wuz deceived.” Any securities rating (stock, bond, derivative, whatever) is merely an informed opinion with which anyone can disagree. What matters is knowing when the rating-agencies have gotten things right (which they do about 85% of the time) and when they have gotten things wrong. Complain about S&P and their ratings if you want to, but I’d say this: "A poor workman blames his tools." Bond-ratings are just that, a tool that the skilled use skillfully and the not-so skilled complain about.----------------PS I'm glad to see you're posting again.
charlie: 'Yes, each of us does have a voice in the matter by how we vote.'By which time it's too late - since most elections are won on rhetoric, not substantive issues. Nobody voted for invading Iraq/ Afghanistan, or even TARP. Pols get the votes, then go and do exactly what their respective campaign contributors pay them to do. Sure, we can boot them out later - but we can't undo the damage.'But when cuts to US-based, military bases are proposed, or cuts to huge hardware projects are proposed, who protests the loudest?'The respective industry lobbies - by speaking softly and wielding the biggest stick of all - $$$ signs.'The faster the US spends itself into bankruptcy, the sooner the rest of the world will have a chance to achieve genuine peace.'Very well put, rhetorically speaking, but I can't think of a more painful Rx for the American people.--------------------------Global Gains Home Fool
charlie: 'Those who complain the loudest about the rating-agencies cannot do their own credit-analysis.' Surely you don't expect everyone to have the same credit-analysis skills as your own? Each one of us has different skills to offer. If we don't understand, say architecture, should we not consult an architect, and then protest if he doesn't deliver the goods? What would the various service professions be worth if everybody else could figure out what they themselves charged fancy prices for? :)-----------------------Global Gains Home Fool
TMGCog, Voters know well in advance of election results who are the hawks and who are the doves, who promises the glory of empire, and who promises domestic fiscal restraint. The American voting public could vote for peace, but they really don't want it, if their actions are an accurate indication of their values and intentions. Forget the morality of killing thousand of the world's other peoples. Just focus on the costs. How much, really, are we paying to kill nine children gathering firewood in a Pakistani forest, and what benefits do we receive? Years ago, some economists did a study of the costs to Britain of running its empire. Yes, it seemed as if they were able to extract raw materials from their colonies quite cheaply until the costs of occupying armies were backed in. Then, those same raw materials cost more than it would have if they had been bought on the open market. The situation is no different with the US and its attempts to control oil as a resource and oil as a pricing weapon. ("How did our oil get under their sand, anyway?) To the nearly $4 per gallon Americans are now paying at the gas pump, they need to add the $1.2 trillion dollars that will be spent this year on our foreign follies, making the real price a gallon closer to $10 (or whatever). Again, where is the price of crude today? How much of that $111 per barrel is the costs of extraction and transportation and how much is the price due to a depreciating dollar plus the price of US-induced geo-political instability? In other words, Americans, through their foreign policies, are enriching exactly the countries we have defined as our enemies: Iran, Venezuela, etc. Sometime, when you want a glimpse of just how backward the US is, pick up any of the volumes Chalmer Johnson's Blowback trilogy."In Blowback, I set out to explain why we are hated around the world. The concept "blowback" does not just mean retaliation for things our government has done to and in foreign countries. It refers to retaliation for the numerous illegal operations we have carried out abroad that were kept totally secret from the American public. This means that when the retaliation comes -- as it did so spectacularly on September 11, 2001 -- the American public is unable to put the events in context. So they tend to support acts intended to lash out against the perpetrators, thereby most commonly preparing the ground for yet another cycle of blowback. In the first book in this trilogy, I tried to provide some of the historical background for understanding the dilemmas we as a nation confront today, although I focused more on Asia -- the area of my academic training -- than on the Middle East." "The Sorrows of Empire was written during the American preparations for and launching of the invasions and occupations of Afghanistan and Iraq. I began to study our continuous military buildup since World War II and the 737 military bases we currently maintain in other people's countries. This empire of bases is the concrete manifestation of our global hegemony, and many of the blowback-inducing wars we have conducted had as their true purpose the sustaining and expanding of this network. We do not think of these overseas deployments as a form of empire; in fact, most Americans do not give them any thought at all until something truly shocking, such as the treatment of prisoners at Guantanamo Bay, brings them to our attention. But the people living next door to these bases and dealing with the swaggering soldiers who brawl and sometimes rape their women certainly think of them as imperial enclaves, just as the people of ancient Iberia or nineteenth-century India knew that they were victims of foreign colonization." “In Nemesis, I have tried to present historical, political, economic, and philosophical evidence of where our current behavior is likely to lead. Specifically, I believe that to maintain our empire abroad requires resources and commitments that will inevitably undercut our domestic democracy and in the end produce a military dictatorship or its civilian equivalent. The founders of our nation understood this well and tried to create a form of government – a republic – that would prevent this from occurring. But the combination of huge standing armies, almost continuous wars, military Keynesianism, and ruinous military expenses have destroyed our republican structure in favor of an imperial presidency. We are on the cusp of losing our democracy for the sake of keeping our empire. Once a nation is started down that path, the dynamics that apply to all empires come into play – isolation, overstretch, the uniting of forces opposed to imperialism, and bankruptcy. Nemesis stalks our life as a free nation.” Again, it isn't the ethics of our foreign policies that concerns me, but the costs. The US is beggaring itself, and the rest of the world is waiting impatiently until we defeat ourselves with our own stupidity. To paraphrase an overused quote, "We have meet the enemy, but we keep denying it is us." Charlie-------------------http://en.wikipedia.org/wiki/Chalmers_Johnson
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