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Old 08-06-2011, 05:52 AM   #61
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Originally Posted by KingB View Post
It is true. I saw the report on CBS news.

S&P downgrades U.S. debt - CBS News

Another sell off this Monday?
I'm not sure why this should affect anything. S&P hasn't discovered anything new, and as others have said, the rating agencies displayed themselves to be fairly clueless in 2008.

I particularly liked this:
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The error was in the calculation of the U.S. debt-to-GDP ratio over time and was based on a misreading of what the correct congressional baseline was, government sources indicated. They said that once informed of the error S&P revised its rate-cut rationale to emphasize the political aspects of the country's debt situation.
In other words:
- They saw some numbers which they didn't like
- They created a narrative to explain it in terms of X and Y
- The numbers turned out to be wrong, thus making X invalid
- The authors of the narrative turned up the volume on Y

Of course, the irony that this "post hoc begging of the question" is what politicians do all the time (if you want an example, check out what happens to the discourse of 98% of elected officials when presented with the scientific facts about marijuana), so it's "funny" - if any of this were funny - to see the Treasury catching S&P out on it.
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Old 08-06-2011, 08:21 AM   #62
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I would agree on the "vote of no confidence" idea if these ratings agencies had any credibility - I have "no confidence" in them after all their "AAA-rated" toxic securities blew up 3 years ago.
True. S&P is just one opinion and not an always reliable one. As with equity prices, markets tend to be better judges of credit risk than individual analysts. As of Friday the markets had voted for 2.56% 10-Year Treasury yields.
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Old 08-06-2011, 08:38 AM   #63
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In other words:
- They saw some numbers which they didn't like
- They created a narrative to explain it in terms of X and Y
- The numbers turned out to be wrong, thus making X invalid
- The authors of the narrative turned up the volume on Y
The rating agencies are in a bad position with respect to the recent, and potential future, debt ceiling debates. If the U.S. had defaulted, the agencies would have been forced, as a matter of policy, to downgrade our ratings 17 notches. That is not only super embarrassing for them, but Aaa's aren't supposed to default at all. A default means the rating was severely wrong.

Looking ahead, we now have a process in place where we can expect to repeat the recent brinkmanship over and over again. Each time presents a risk that the agencies will have to downgrade us 17 notches. That risk of ratings downgrades and default, somehow, has to factor in to current ratings. And the only way it can, is with lower ratings today.

Given the way ratings are constructed, there really is no internally consistent way to say the U.S. is still a Aaa credit. The only way to get there is to ignore those future potential defaults. But to say so explicitly makes a mockery of the ratings.
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Old 08-06-2011, 08:46 AM   #64
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The important thing the US has that a corporation doesn't isn't the ability to print money, it's the ability to tax. Tax rates are low. There's a huge untapped tax base the gov't could open up, and likely will out of necessity.

It's not like we are all paying 60%- 90% income tax rates and can't bear any more burdens. Rates are among the lowest they've been since the establishment of the income tax in 1913.

I think that's where the confidence in US debt comes from.
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Old 08-06-2011, 09:02 AM   #65
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I suppose after Berlusconi sent his boys into Milan... somebody had to eliminate any hint of showing favoritism.

News Headlines


Maybe this will cause our elected officials to cooperate and develop a bi-partisan plan.


But if recent events are any indication of what is to come... they will each just (try to) use it to blame the other for the downgrade!
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Old 08-06-2011, 09:07 AM   #66
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Ok... where are the 8% 10 yr treasuries... I'm ready!
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Old 08-06-2011, 09:30 AM   #67
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Originally Posted by Gone4Good View Post


Looking ahead, we now have a process in place where we can expect to repeat the recent brinkmanship over and over again. Each time presents a risk that the agencies will have to downgrade us 17 notches. That risk of ratings downgrades and default, somehow, has to factor in to current ratings. And the only way it can, is with lower ratings today.
The obvious solution would be to eliminate the debt ceiling law, as DonHeff has suggested. That is, budgets still have to be approved, but we don't have this repeated artificial default risk. I guess no one can suggest that appearing to say "We don't care about debt."
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Old 08-06-2011, 10:11 AM   #68
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It's not like we are all paying 60%- 90% income tax rates and can't bear any more burdens. Rates are among the lowest they've been since the establishment of the income tax in 1913.
But you're just looking at the federal level. The federal income tax is only part of the burden. Over the last 20 years, a lot of things formerly done by the federal government have been shifted to states and municipalities, and they have raised taxes. It's the total taxes paid by individuals and corporations that is the best measurement of the government "drag" on the economy. When that drag gets too high, there's just not enough money left for private industry to make the investments needed to increase productivity. That's the death of the goose that lays the golden eggs.

From another recent post:

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Our total tax burden (all levels) is already headed toward historic highs. It's time to reduce spending. If we want more revenue for the government to spend, there are only two good ways to do it:
1) Reform the tax system so the taxation base is wider (i.e. more people pay taxes), the deductions and loopholes are eliminated or reduced, and the rates are lower. This can allow the government to get more money in the very first year while not hurting businesses (because compliance costs on businesses and people go down, and because money will flow in accordance with where it can produce the most profit, not where the tax code "pushes" it).
2) A bigger pie. As the economy grows in response to the above steps, the absolute tax revenues increase (not as a share of GDP, but in real value).
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Old 08-06-2011, 10:15 AM   #69
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Yep. I think it's one of those things you have to experience to truly understand.
Once you get thru the first two or three downs and ups you get used to it.

Er sort of.

Being on full auto - aka the Vanguard computers rebalance my balanced index life cycle fund for me which helps. Some.

And yes Gertrude there WILL be a football season.

heh heh heh - somehow that helps a lot although I can't explain why. Hormones maybe??
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Old 08-06-2011, 10:22 AM   #70
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In something I read tonight, the analysts said Mr. Market had already factored this downgraded rating possibility into things. I don't know exactly what that means will happen on Monday.
That is a possibility. My intermediate bond funds are down 1.5% even before the news came out.
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Old 08-06-2011, 10:41 AM   #71
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"China bluntly criticized the United States on Saturday one day after the superpower's credit rating was downgraded, saying the "good old days" of borrowing were over."

"China -- the United States' biggest creditor -- said Washington only had itself to blame for its plight and called for a new stable global reserve currency."
--from yahoo business
I vote for a tough day Monday.
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Old 08-06-2011, 11:14 AM   #72
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I vote for a tough day Monday.
Nah, I saw this too about China - looks like everyone's piling on the quarterback. I vote with the rest that say that this is no big news. Nothing new. You think anybody is going to buy or sell on Monday because S&P repeated the obvious?

I don't like the current political/financial situation we are in. But just because one rating company downgrades US debt (which seems laughable to even say it), is no excuse to sell out of some well positioned stocks.

I wonder how much the Chinese would be willing to pay for Yosemite National Park? It would be interesting to see a true balance sheet for the US government - with all the assets and liabilities. I'll bet we are still very far away from red ink. Congress may like to play brinksmanship in a very politically charged atmosphere, but the US government is never going to declare bankruptcy.
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Old 08-06-2011, 11:39 AM   #73
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As others noted, this coming from the firm that rated subprime loans AAA. What a crock, especially when it was pointed out to them that they made a $2T math error in their analysis. Sorry, but I do not see US debt taking a backseat to any of these other countries that are AAA regardless of our game playing politicos.
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Old 08-06-2011, 11:47 AM   #74
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S&P downgraded the US but Fitch reaffirmed and Moodys did nothing. That leaves enough room for most institutions, central banks, mutual funds, etc to do what they want and not be forced to do anything. Retail investors, on the other hand, will probably do the wrong thing. I hope to have some free time monday to hunt for short-lived bargains.
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Old 08-06-2011, 11:59 AM   #75
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I don't like the current political/financial situation we are in. But just because one rating company downgrades US debt (which seems laughable to even say it), is no excuse to sell out of some well positioned stocks.
Agreed. But most people invest very broadly. From what I've seen, China doesn't lecture others much, certainly not compared to the US. This type of talk could be seen by some as something very serious. More uncertainty-more volatility.
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A wake up call for economic war
Old 08-06-2011, 12:15 PM   #76
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A wake up call for economic war

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So Anyone care to look into their crystal ball and tell us what's going to happen with this downgrade??

Is it time to flee and move to cash??
Didn't have a Crystal ball, so I drove drove to Wallmart and got one ( made in China out of plastic $4.99 on sale ) put in us made batteries.

I put in the question, and the answer came up as " S and P , S.T.F.U. " .

I.I.R.C. , S and P was in the improperly rating junk securities as prime in the not too distant past .

We are in deep doo do , it didn't just happen and nothing other than energy independence and some strategic protectionism to get manufacturing back to the us will work. Doing this will be very ugly and painfull in the short term ( about ten years or so ) .2/3 of our economy as " consumer " is a guarantee of 2nd rate nation status for all of our children .

F.Y.I , I took off my tin-foil hat long ago. No change in outlook.

Off of my soapbox for now.
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Old 08-06-2011, 12:15 PM   #77
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I'm with Gumby, DFW M5 (and Warren Buffett) on this one: S & P lost all credibility long ago. Today's comment from our last Nobel Prize winner in economics says it all:

S&P and the USA - NYTimes.com

Treasuries have continued to behave like the riskless asset of last resort they have always been during this crisis. A witty observer of this mess whose black humor about our gov't I unfortunately have come to share describes Treasuries this way: "the best horse at the glue factory."
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Old 08-06-2011, 12:24 PM   #78
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Agreed. But most people invest very broadly. From what I've seen, China doesn't lecture others much, certainly not compared to the US. This type of talk could be seen by some as something very serious. More uncertainty-more volatility.
I think China added a suggestion that the US should cut military spending to balance the budget. I think that shows that they are not making a serious fiscal comment, but rather an opportunity to kick us in the butt when we bend over. I can't see how anybody can take this comment seriously. It's the same as when the US criticizes China for human rights violations whenever they throw a dissident in jail. All kind of opportunistic babble.
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Old 08-06-2011, 12:27 PM   #79
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Treasuries have continued to behave like the riskless asset of last resort they have always been during this crisis.
Which raises the questions: Why are all of the nominally 'free market knows best' guys in full hysteria mode over recent deficits when the 'free market' has driven U.S. 10-yr borrowing costs from 5% before the crisis to 2.56% as of yesterday?

(BTW, predictions that interest rates were manipulaed by the Fed and would spike at the end of QE2 proved as accurate as predictions that inflation would soar in 2009, 2010, 2011, 2012)
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Old 08-06-2011, 12:33 PM   #80
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Even cash will give you problems; low rates of return from CDs and savings accounts; inflation which is inevitable will kill your buying power. Carrying large sums of cash invite crime.

There really is no place to hide - even foreign currencies such as the Euro, Yen and Sterling are struggling with their own troubles.

I will be hanging on to my bonds and dividend stocks- will probably still suffer principal loss, but at least they give a steady stream of income now that I'm ER with no pension, and not being able to take Soc Sec as yet.
Inflation protected bonds, large cap securities asia-ex/japan funds are perfect investments in this situation.
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