Oh boy, here we go. Microsoft Co. is more creditable than the United States government now. How did it come to this.
Interesting timing. I’m sticking with my original guess. Stocks will go down, along with Treasury yields. Downgrade essentially meaningless.
Sweep the Leg Wrote: ------------------------------------------------------- > Interesting timing. I’m sticking with my original > guess. Stocks will go down, along with Treasury > yields. Downgrade essentially meaningless. Flight to safety yo!!!
Sweep the Leg Wrote: ------------------------------------------------------- > Interesting timing. I’m sticking with my original > guess. Stocks will go down, along with Treasury > yields. Downgrade essentially meaningless. Agree any downgrade is meaningless. Japan’s interest rates have continued to fall for a decade after the ratings agencies downgraded them. For fiat currencies, yields tend to counter-intuitively go down rather than up with higher government debts/deficits as there are more savings in the economy chasing yields around even as economic growth is often low (hence the high deficits). Since inflation and growth expectations are the sole inputs determining interest rates for sovereign entities with debt issued in their own currency, yields are likely to decline if the economy slows further. At the end of the day, interest rates are going to be whatever the Bernanke says they are going to be. The ratings agencies have no influence and therefore no business sticking their noses in. They are highly political companies.
I’m sure they timed it to reduce any panic induced trading in the markets. At least everyone now has the weekend to digest the information. A bank will not have to hold any capital for Treasuries. I find it pretty funny that a bank will still have to risk weight a AAA corporate bond and allocate 0% to US obligations. However, corporations don’t have the ability to print currency. So the question that’s been lingering for a while is what is the risk free rate?
Dwight Wrote: ------------------------------------------------------- > > Agree any downgrade is meaningless. Japan’s > interest rates have continued to fall for a decade > after the ratings agencies downgraded them. > I wonder if S&P downgrade was leaked. It would explain why the markets corrected so sharply without a smoking gun. yesterday’s -5% market drop I would expect the day after the downgrade, but instead we got a -5% first on a day NO data came out (except a dinky initial claims of 405k versus 400k consensus), and the downgrade came AFTER the crash. sounds fishy. Oh, and Japan is not a comparable scenario. Because Japan mostly owes its debt to its own citizens. If your debt collectors never come to the door and continue to give you money, your interest rate can very well go down. Our Fed cant keep buying forever
Fed can’t keep buying forever?? Why not? If China stops buying our Treasurys, the Fed can step in and fill the gap. Sure, the dollar will get slammed and anything imported will become expensive, but guess what… the US worker will suddenly become globally competitive. And we have a large enough country with a still-basically-functioning infrastructure that we actually can build stuff here. The main worry would be if our currency collapses, maybe foreigners will buy up all our companies and take control of them, which would be bad for any intellectual property developed by Americans. But those companies would still be interested to hire US workers, because we are now cheap labor. And housing prices would rise due to inflation, and that would mean that homes could be sold and mortgages paid off. The labor force would be mobile again, and we would not be stuck deleveraging. So, yes, basically we need to revalue the USD, and inflation is the least-bad way to do it. Who gets screwed? Well, people who hold bonds. Who are they? Well, people that lent. The people who lent without doing their due diligence. Retirees also get screwed, if they are mostly in fixed income, because their stuff won’t keep up with inflation. Yes, that is sad, but those guys got to live it up through the boom years and party like there’s no tomorrow and vote for entitlement after entitlement and tax cut after tax cut, so I don’t think we should cry for them too much. It’s not like the boomer generation was so selfless that they deserve to have the rest of the country pay up so that they can live out their golden years as self-absorbedly as they did the rest of their lives. And if they did turn out to be selfless enough to give a cr*p about their kids, then they should be happy that their kids might have a job and a future and even be able to help them in their old age. Personally, I suspect that the reason that the country is pursuing austerity and contraction and ongoing depression with such dedication is because the people who are most politically organized are the bondholders. And they don’t really care if there’s a Great Depression #2, because it will mean that their coupon payments will go farther, even if it means that everyone else is out of work for a decade.
When the F are people going to wake up and realize that we need to make some serious changes to Medicare and Social Security? Both sides are terrified to even whisper anything about SS because they’re afraid people are going to rise up out of nursing homes and vote them out of office (which they may). The truth is, entitlements such as SS, Medicare, and Medicaid are well over 1/2 of gov’t spending and will be rising dramatically once BB start retiring in mass droves in a few years. THIS is the reason our debt to GDP will be 80% in a few years. There is no F_ing way our fiscal situation is going to get substantially better by cutting a few commuter rail programs and buying less missiles.
McLeod81 Wrote: ------------------------------------------------------- > When the F are people going to wake up and realize > that we need to make some serious changes to > Medicare and Social Security? > > Both sides are terrified to even whisper anything > about SS because they’re afraid people are going > to rise up out of nursing homes and vote them out > of office (which they may). The truth is, > entitlements such as SS, Medicare, and Medicaid > are well over 1/2 of gov’t spending and will be > rising dramatically once BB start retiring in mass > droves in a few years. > > THIS is the reason our debt to GDP will be 80% in > a few years. There is no F_ing way our fiscal > situation is going to get substantially better by > cutting a few commuter rail programs and buying > less missiles. Agreed dude. I don’t know when people will wake up though. Scouring some blogs, I’m completely astounded by the sheer amount of misinformation circulating. Crap even on this site, we get some wing bats that fail to recognize that entitlements are the real issue. Its like a weird religion or something, they just cannot accept the truth.
The downgrade is symbolic. This way S&P can say they covered their ass if something hits the fan later on and can say they took the initiative before Moodys and Fitch. Its not as if the downgrade has any direct impact on the US government’s ability to pay its debt.
So? They rated mortgage back securities and CDOs AAA too!
iteracom Wrote: ------------------------------------------------------- > I wonder if S&P downgrade was leaked. It would > explain why the markets corrected so sharply > without a smoking gun. Sometimes that just happens. On October 19 1987 the market fell 22% in a day on no news. If you are looking for a smoking gun I think there are plenty of pockets of concern in Europe. > Oh, and Japan is not a comparable scenario. > Because Japan mostly owes its debt to its own > citizens. If your debt collectors never come to > the door and continue to give you money, your > interest rate can very well go down. I disagree. Japan owes 90% of its debt internally, but that is because it has very protectionist trade policies and devalues heavily whenever its currency rises in value. Note that this just happened again a few days ago when they intervened to stop the Yen from rallying vs the dollar. Japan does not allow other countries to accumulate large trade surpluses/savings against it, and in fact purchases bonds of other countries to keep the Yen cheap in order to export. The US allows other countries to keep their currencies undervalued relative to the dollar and accumulate treasury bonds by running trade surpluses. That is the reason so much US debt is held abroad, not because we are greedy and lazy and “want” to borrow so much. In fact politicians frequently slam China for intervening so much and buying so many USTs. People frequently get the causality backwards. > Our Fed cant keep buying forever At what point would the Fed lose its ability to type numbers into a keyboard and increase the values in checking accounts? I realize that you are not necessarily making that exact argument but what exactly are you worried about? Inflation is hardly a concern right now. The fed can keep rates as low as it wants to try to stimulate the economy. It has no limitations imposed on it by the so-called “bond vigilantes”.
CFABLACKBELT Wrote: ------------------------------------------------------- > Agreed dude. I don’t know when people will wake > up though. Scouring some blogs, I’m completely > astounded by the sheer amount of misinformation > circulating. Crap even on this site, we get some > wing bats that fail to recognize that entitlements > are the real issue. Its like a weird religion or > something, they just cannot accept the truth. I have no problems with entitlement reform in a general sense, and clearly health care expenditures are not going to keep rising at double digits forever. At some point a future administration is going to have to start making some tough choices about resource distribution. However I highly doubt that anything this administration does is going to influence those choices in any major way, it is just hand wringing and posturing at this point. They are trying to fight battles for 20 years from now while there are quite enough problems to worry about today. Where I do disagree is when people say we are all “living beyond our means”. Forget the political rhetoric and just look outside your door where there are 5 people lining up for every job posting, businesses closing their doors, and factories lying idle. With massive underutilized resources it is clear that in the real world the opposite is true and we are living far below our potential. The argument reminds me of the old story where a wife goes home to find her husband in bed with another woman and he says “honey who are you going to believe, me or your own eyes?”. Right now many politicians and media pundits are saying something to the effect of “don’t believe your own eyes, believe me, disaster is around the corner for our kids if we don’t cut everything to the bone. If we can only slash government spending and raise taxes that will solve the problem.” It is just does not make sense and we can see the actual real-time results of this sort of policy mistake going on right now in Europe.
I’m way short the market at the moment. However I am worried that some equities will rally? What are the odds of that? I’m still holding gold. What’s going happen there? I don’t hold bonds. What will happen there?
Easy way to reduce the deficit is to reduce the size of the US military public spending. The reality is that the Cold War is over and having a large military is no longer efficient. I will rather the US was an economic superpower than a military one. The Rs want defence spending to be ringfenced and will never agree to defence cuts. They will argue that defence cuts will lead to marines and military personnel being laid off. My radical proposal is that let us privatise some parts of the US military. If the Libyan rebels need US military assistance, well they should only get it if they are willing to pay for it. US tax dollars should not be used to finance these wars. There are massive negative externalities to the US taxpayers from our involvement in these wars. See where it got our credit rating…
With huge amount of people set to retire ( I think the statistic is something like 8000 people going into retirement every day this year ) do you think these people will vote to cut SS or Medicare? not a chance. There was an article about the silent majority or something. These people who were never much into voting or politics and just hope the govt does its job right. They could be game changers if they went to the polls. I think jobs and spending are equally the problem. If jobs growth just suddenly started to grow well, a lot of this debt problem fixes itself (jobs UP, tax revenue UP, consumption UP, earnings UP, more jobs UP)
Countries with hoards of gold should sell. If an asset becomes priced beyond reason , and you got a nice fat return, just start dumping it and lock it in. Yea it’ll screw gold speculators, but who cares about them? That’s what the IMF does to raise money to bail of countries.
Bchad did u mean we need to Devalue the usd and inflation is the least bad way?
Agree with Iteracom, it’s absurd to think about reducing SS and Medicare with the aging population we have. The only thing possible is to raise taxes on the wealthiest, cut military spending etc. But I’m not getting my hopes up on the latter, the former is possible, simply by letting the tax cuts expire, but the opposition can continue to block legislation until tax cuts are extended like last time. My issue is - the SS Trust Fund holds primarily non negotiable treasuries. Reducing the size of SS, would be a lowering of liabilities in favor of the debtor and to the disadvantage of the creditor…sounds like the definition of default to me…