USA credit rating

[Lakewood90712]

A wake up call for economic war

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.

 

[kevink]

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."

 

[Hobo]

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.

 

[Gone4Good]

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)

 

[heirloom]

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.

 

[Hobo]

Inflation protected bonds, large cap securities asia-ex/japan funds are perfect investments in this situation.

Absolutely agree. Most Asian countries have only grown stronger while most Western countries have struggled. They went through their monetary crisis 10 years ago when the banks fell apart for giving bad loans (sound familiar?). Ignore Japan and the Yen, is in a totally different world. I like Indonesia and Malaysia because I never buy a bond that is paying less than 5%. I'd rather take a little more risk to get a good return. I like headlines that read, "Indonesia's GDP Grows 6.49% as Central Bank Avoids Rate Rise".

It is a whole new world of investing for many Americans, but the times call for new investment strategies.

 

[ChrisC]

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.

If we were to end the Bush tax cuts like this former OMB Director in another Administration suggested last year, we'd have enough revenues to put most of these cash flow issues behind us. Stockman: Bush Tax Cuts Will Make U.S. Bankrupt : NPR

The debt ceiling crisis or fiasco was essentially a manufactured debacle. It is really a unique cash flow issue that only the Government faces.

The U.S. Budget is simply a statement of cash flow, not a balance sheet. On a balance sheet basis, the Government is not insolvent (it has vast assets that if valued appropriately, places the Government in the black in perpetuity). And on a liquidity basis, the Government can always raise taxes to meet cash flow needs (or if it wished to operate as a private corporation it could sell assets or increase the cost of subsidized services such as fees to National Parks or Museums, increase tolls on Interstate Highways, charge more for postal services, increase fees for a number of licenses the Government requires businesses or indviduals to have, etc).

The notion of equating the U.S. Budget with a family budget is a bit nonsensical. And it's also nonsensical to me to have a rating agency dictate the credit worthiness of the U.S. Government especially in light of the 14th Amendment. If we can't pay our public debt (really an unfathomable position in light of Article III Judges and the 14th Amendment), the world has we know it has ended completely and anarchy would exist!

 

[Bestwifeever]

Just for grins I looked this up: S&P | Ratings Sovereigns Ratings List | Americas

where you can see the S&P ratings for the 126 sovereign nations.

 

[Ronnieboy]

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.

I believe they (China) also suggested we move to a one world currency.

"International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country," Xinhua said.

 

[Hobo]

Just for grins I looked this up: S&P | Ratings Sovereigns Ratings List | Americas

where you can see the S&P ratings for the 126 sovereign nations.

Really makes you wonder what value any of these rating systems have. They are making educated guesses, no better maybe worse, than any other professional financial analyst can make. If you really think about it, how can S&P really be able to judge the creditworthiness of some foreign nation? Clearly someone who lives in a foreign country, and understands all the subtleties of that country, can do a better job than S&P

 

[heirloom]

I like Indonesia and Malaysia because I never buy a bond that is paying less than 5%. I'd rather take a little more risk to get a good return. I like headlines that read, "Indonesia's GDP Grows 6.49% as Central Bank Avoids Rate Rise".

I never looked at Indonesia, but I could kick myself for not purchasing EWM when it was $10. I remember Guy Adami suggesting it and I looked at it but thought it held too many financial banks. WAS I WRONG!!

What do you think of the Vietnam ETF??

 

[Hobo]

I like Indonesia and Malaysia because I never buy a bond that is paying less than 5%. I'd rather take a little more risk to get a good return. I like headlines that read, "Indonesia's GDP Grows 6.49% as Central Bank Avoids Rate Rise".

I never looked at Indonesia, but I could kick myself for not purchasing EWM when it was $10. I remember Guy Adami suggesting it and I looked at it but thought it held too many financial banks. WAS I WRONG!!

What do you think of the Vietnam ETF??

I don't know about the ETF specifically, but Vietnam is another Asian country that is politically stable, attracting foreign investment and growing in numerous sectors - including manufacturing and tourism. I am beginning to think these so-called Communist countries, who have adopted an open market policy (like China), are able to make critical decisions faster and more definitively than Democratic countries. They rarely are gridlocked like the US is now.

 

[clifp]

I don't know about the ETF specifically, but Vietnam is another Asian country that is politically stable, attracting foreign investment and growing in numerous sectors - including manufacturing and tourism. I am beginning to think these so-called Communist countries, who have adopted an open market policy (like China), are able to make critical decisions faster and more definitively than Democratic countries. They rarely are gridlocked like the US is now.

Pretty much anybody I've talked/listen to that has been to China, has a times wished that our government functioned more like the Chinese at least temporarily. Stuff just gets done there in a very quick fashion. I know for the Olympics that they built a light rail system in a year, similar to the one that is likely to take 20 years to be built in Honolulu.

I also liked how the dealt with the NIMBY crowd. Step one was to meet with the locals and seriously take their input and make some changes to the project. If people still bitched they might make a few minor changes, but also warned the protestor that were being selfish/foolish. However, after the project was started, people who still complained were typical shipped off to labor camps, and any lawyers for the group were jailed.

This seemed like win-win provide labor for needed infrastructure projects and reduced the number of lawyers

 

[MichaelB]

Well, let’s see. I’ve been to China, have extended family that was born there, and have other extended family living there. I lived through the 80’s when Japan (family there also) could do no wrong and was viewed much like China today - the global wunderkind.

There is no way I wish our government functioned like either, especially the Chinese and consider it my greatest fortune to not have to live there. An autocratic system of government helps get things accomplished and limits dissent, but it only works for survivors and those not imprisoned for expressing their opinions. A life of limited choices and no expression is a high price to pay for political expediency.

 

[Retire Soon]

This is what China, the largest purchaser of U.S. Treasuries had to say about our credit downgrade:



“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets,” it said.

Xinhua said the U.S. must slash its “gigantic military expenditure and bloated social welfare costs” and accept international supervision over U.S. dollar issues.

China rips U.S. on debt-rating downgrade - MarketWatch

 

[Gone4Good]

Pretty much anybody I've talked/listen to that has been to China, has a times wished that our government functioned more like the Chinese at least temporarily.

I don't wish our government functioned like a one party autocracy. Sure twice as much would get done, but you'd be four times less happy about it.

What I wish is that it were possible to have reasonably intelligent debates, devoid of hyperbole and invective, between parties who's first priority was to do the right thing for the country.

Barring that, I'd settle for a system that penalized outright falsehoods and rewarded honesty.

 

[Gone4Good]

This is what China, the largest purchaser of U.S. Treasuries had to say about our credit downgrade:

To which, our response should be . . . "stop buying our Treasuries."

If they did stop, the Yaun would rise, the dollar would fall, and some of the international imbalances would be rectified. We'd both be better off.

 

[clifp]

There is no way I wish our government functioned like either, especially the Chinese and consider it my greatest fortune to not have to live there. An autocratic system of government helps get things accomplished and limits dissent, but it only works for survivors and those not imprisoned for expressing their opinions. A life of limited choices and no expression is a high price to pay for political expediency.

Ok you and G4G are prolly right and I certainly won't live full time under the autocratic rule. I guess it is telling how frustrated I've been with our government recently that I'd consider this to be a good idea.

 

[MichaelB]

Ok you and G4G are prolly right and I certainly won't live full time under the autocratic rule. I guess it is telling how frustrated I've been with our government recently that I'd consider this to be a good idea.

No disagreement there. The frustration is shared. The solution, however "pollyanna-ish" this sounds, is more involvement by more people, not steamrolling the opinions of dissent.

 

[Retire Soon]

Warren Buffett has responded to the S&P downgrade:


"If you can count on one thing from Warren Buffett of Berkshire Hathaway Inc. (NYSE: BRK-A) any longer, it is for him to stay very positive and upbeat about the long-term prospects of the United States. After S&P downgraded the "AAA" rating of the United States, Buffett told FOX Business Network that he does not get the downgrade and that it basically won't change his investments.

In short, he thinks that S&P is off-base and said that the United States should be a Quadruple-A in ratings. He also said he thinks that this will have a limited impact if no new developments occur. He noted the debt being in dollars allows the United States to print its way out of debt payments, even if that does mean inflation."

Warren Buffett Discounts S&P Downgrade of U.S., More Self-Serving Days To Follow (BRK-A, MCO) - MarketWatch

 

[Hobo]

I don't wish our government functioned like a one party autocracy. Sure twice as much would get done, but you'd be four times less happy about it.

What I wish is that it were possible to have reasonably intelligent debates, devoid of hyperbole and invective, between parties who's first priority was to do the right thing for the country.

Barring that, I'd settle for a system that penalized outright falsehoods and rewarded honesty.

You missed the point. No one wishes to change our government to become like China. The envy is their ability to make quick decision when running the economy. No one would trade their judicial system for ours. Growing the economy is their highest priority, and human rights for the common man suffers because of it.

 

[chinaco]

I don't wish our government functioned like a one party autocracy. Sure twice as much would get done, but you'd be four times less happy about it.

...

It was just a comparison of a strength vs a weakness.

Our form of govt has some weaknesses... all do.

looking at the whole system, I think our form of govt is better... but, gridlock without a recourse or way to break it is a weakness. The only way we can break it is for someone to give up (which may not be the best course) or bribe the other person (e.g., free pork).

There are many other weaknesses in our form of govt also.

The practical problem is that people do not adhere to the spirit of the system... they use the letter of it (sometimes) to game it for any variety of motives (usually money or power/control are at the root of it.... sometimes pride and not being willing to admit one is wrong).

 

[traineeinvestor]

What do you think of the Vietnam ETF??

I have a small position in a Vietnamese ETF which is sadly underwater. While the demographics and the potential for the private sector to continue to benefit from further deregulation exist, very high inflation (and the measures being taken to combat it) and currency depreciation have killed the returns - I am losing money on this position.

YMMV.

 

[Gone4Good]

You missed the point. No one wishes to change our government to become like China. The envy is their ability to make quick decision when running the economy.

No I understand. But I think you miss my point. Our system was deliberately designed not to make quick decisions because those decisions are often bad ones. Just because the Chinese can move quickly doesn't mean what they're doing makes sense. As much as everyone wants to laud China as the new emerging superpower, their political and economic system is a mess. Sure they can build trains on a moment's notice, but only through a top down central planning approach that has generally failed everywhere in the world it has been tried. It's also possible because of a fundamental disregard for property rights. So no, I don't really see their ability to move quickly as a strength.

Our system certainly has its dysfunctions, but it can move quickly when there is strong consensus. What we lack isn't a system with adequate speed and adaptability, but an electorate with a clear idea of what it wants done and how it wants it accomplished (i.e. 'reduce the deficit but don't raise taxes and don't cut any Federal programs but foreign aid').

 

[HFWR]

You missed the point. No one wishes to change our government to become like China. The envy is their ability to make quick decision when running the economy. No one would trade their judicial system for ours. Growing the economy is their highest priority, and human rights for the common man suffers because of it.

Perhaps, though, these are the ultimate "trains to nowhere", to borrow a metaphor...