oh canada

[zebra16]

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How does dis-crediting the rating agency S & P help? Does it automatically elevate the US's sovereign debt rating?

On many other threads the posters were repeatedly exhorted to attack the idea of the poster, but not the poster himself. So going hammer and tongs at S & P is no answer to US's credit rating.

As regards buying treasury in secondary markets, how does it prove one thing or another? If new treasury papers are issued, and if these papers are subscribed at interest rates prevailing before the downgrade, then one can view with a bit more optimism. Also please do not forget that each purchase of the treasury by the new lot was met by the sale by the existing holders. The existing holders were not fools either to dump the government paper.

 

[zebra16]

Biswa, S&P ratings have no credibility whatsoever. S&P downgraded Japan and it did not have any effect on Japan's ability to borrow at rates like 1%. Now, Japan, with national debt at around 200% GDP enjoys AAA from S&P, yet they see fit USA debt is more risky.

Isnt there a lacuna somewhere? How can be a country be down-graded and still maintain AAA rating?

 

[Nara]

How does dis-crediting the rating agency S & P help? Does it automatically elevate the US's sovereign debt rating?

Dear narayan sir, There are two reasons for this.

• People are overreacting to S&P downgrade as though they are the final arbiter of all financial risks. This is not so, they have made monumental blunders, some may have been a result of criminal conspiracy to boost ratings in exchange for business.
  
• The second reason is S&P made a $2 trillion error in their computations and still want to put a bold face.

These are the reasons why we are talking about S&P.

If new treasury papers are issued, and if these papers are subscribed at interest rates prevailing before the downgrade,

When we see a stampede for US Treasury bills with yields sharply falling, just one business day after the downgrade, I think this argument that new US debt may be deeply discounted is not a serious argument.

Isnt there a lacuna somewhere? How can be a country be down-graded and still maintain AAA rating?

I looked up the S&P rating for Japanese Sovereign in this page and I found the following:

Domestic Rating:	AA-
Foreign Rating:	AA-
TC Rating:	AAA

Now, even with AA- rating, the yield on 10-year Japanese bonds hover around 1%. So, the prediction of doom and gloom for the US economy is misplaced, IMO. I also note a sort of glee in making such cost-free predictions, and what these people don't realize is, if the US goes down the entire world will go down.

Cheers!

 

[kunjuppu]

Nara,

I think, irrespective of S&P, the morality of managing a society where planned expenses are 50% more than planned income.

Further more, borrowing money, to bridge this gap.

When is this going to stop?

Canada went through this in the 1990s. I remember a lot of people grumbling, but we lived through it ok. no one starved. Or lost their jobs. They had to do with a little less, in terms of government handouts.

Admittedly we don’t have entrenched military industrial complex who have a sense of entitlement.

Also our universal health care, still does a fairly decent job covering most of our health issues, though folks like to complain about that too. But that is an untouchable for us.

With the health care in the usa fragmented and more expensive due to the sheer paperwork and local medical record keeping, not sure how usa can cut medical expenses in the first place.

For example, our hospitals are still private run, but get a fixed amount for each activity from the government, out of which they pay their doctors and staff. The key, I think, is to reduce bureaucracy.

The usa also needs to tax more the booze. It is the cheapest in the world. And the rich folks. In a few years, things will be peachy again.

Now only if the rich folks let this happen!!

 

[Nara]

...I think, irrespective of S&P, the morality of managing a society where planned expenses are 50% more than planned income.

K, yes, S&P downgrade is nothing more than yawn-worthy, so let us take it out of the discussion.

Before I present my views I want to address your point about morality. Irrespective of any specific country, deficit spending is not ipso facto immoral. No liberal democracy can run a country if its actions are perceived as immoral by its own citizens.

Next, I think your எட்டணா பத்தணா analogy is about over spending on ஆடம்பரம். Even in family finances going into debt makes immense sense if it is for education or health emergencies. So, I cannot accept a prohibition on deficit spending like the ones the Tea-party Republicans are demanding -- a balanced budget amendment to the US constitution.

Within the above parameters, I do agree the U.S. is facing some serious economic challenges. I think GWB took a growing economy and drove it to the brink of collapse by 2008. The U.S. is still trying to dig out of that mess. For this, what the U.S. needs right now is creation of jobs, not deficit reduction. The private sector is not willing to take risk, so the government must step in. There are two things the government can do,

1. stabilize the housing market by forcing banks to stop foreclosures and writing down the individual mortgage debts to the "water-level" -- particularly those bailed out banks that engaged in deceptive lending practices, and,
2. a serious and sizable jobs program, perhaps in the order of 2 trillion $. These two actions will boost consumer confidence and force the private sector to get off the sidelines.

Once the unemployment is brought down below about 8%, then a serious deficit reduction program that includes closing tax loopholes and increase of top marginal rates.

Military spending is a major drag on the U.S. economy. The U.S. has been carrying this load for way too long. It is now time for the rest of the western industrial countries, who were having a free ride so far in the most part, to carry their fair share. If this means the U.S. loses some of its clout, that is a small price to pay.

Much of what I wish is surely impractical. Whatever may be practical, the current debt load of U.S. is not a big deal. What is troublesome is the trend. To bend this debt curve in the long run, the first order of business is not deficit reduction, but jobs, jobs, jobs.

Cheers!

 

[Nara]

narayan and K,

here is an op-ed by Paul Krugman, and I am gratified the views I expressed are in line with this op-ed. This is why I think the next two election cycles are crucial.

K, I know the Ds had all three branches of the government, but as you may know, both the political parties, D and R, belong to the same party, the Wall Street Boot Lickers Party.

To further complicate matters, a single senator can tie the senate into knots that nothing can get done. Even after that, to get anything done it needs a 60/100 vote super majority to get anything done.

Even in the house, with clear democratic majority during the healthcare debate, a lot had to be given away before the conservative democrats will support the legislation. The final legislation that could barely pass was in reality nothing more than Insurance Company Profit Enhancing Act.

What we need is a majority of progressive democrats in the house and a close to 60 vote majority in the senate -- only then this spineless president, who punts on first down time and time again, will find the courage to do the right thing.

The hope is, these tea-party Republicans have dragged the Republican party and the country to the edge of the precipice that for a change the ordinary Americans will see fit to vote based on their self-interest and not swayed by the Republican dirty tricks.

Cheers!

 

[biswa]

Thought experiment for Mr K and other deficit hawks:

Suppose we have the luxury to create a brand-new country. No history, baggage etc. Should the govt run a surplus budget or a deficit budget?

FWIW, I was taught the answer to this by my 10th grade economics teacher, so it is not my personal opinion.

 

[biswa]

Where's the maple syrup?

What Mr. K, a whole thread about Canada and no mention of maple syrup? I know money is sweeter than honey, but still ...