First off, borrowing costs on the 10 year bond are also pretty low, so you appear to be in the minority if you trust markets. Second, the answer is tha because you have other priorities - such as say, fixing the biggest economic downturn in history while in a liquidity trap, and which will be exacerbated by doing debt reduction now. I know, tens of millions of unemployed people and collapsing bridges aren't as important as appeasing rentiers but did you ever stop to think that a period of economic growth rather than a stagnant 10 years of deleveraging and deflation would not only solve the latter problem, but the former as well? Finally - if you actually care about debt - how do you think that holding a gun to the economy's head and focing a downgrade which will add to the debt by raising borrowing costs is a remotely rational way to go about solving it? You must mean secret invisible "global confidence" that doesn't affect borrowing costs? Who cares what secret invisible "global confidence" numbers are? I'd fo? As said previously, it's much better to use confidence to get your economy back on track than to try to say "confidence will be gone one day if we don't watch out!" and destroy confidence in the process by ruining your credit rating and punching your GDP in the gut. Look no further than Irish borrowing costs if you'd like a lesson on how budget cuts affect "confidence"
Hey basso from a philisophical standpoint what do you think about raising effective tax rates by closing loopholes?
Yes, borrowing costs are relatively low. I don't think I said they were expensive. That being said we are in a borderline deflationary environment with the housing market continuing to drop. This market will continue to drop since we are still about 40% overvalued if you index the housing market for inflation. With that overhang in our primary center of wealth, then rates aren't as cheap as they appear...but still they are cheap. As an aside, I think it is interesting to note that public companies have been able to secure debt financing cheaper than what the US Govt has been able to get financing for. Yes, it's just on the level of 10's of basis points, but just interesting to note. Sorry if I gave the impression that I was for immediate deep slashes in govt spending. I am for raising the debt ceiling, but I want an actual plan attached to it. Also, we aren't going to all die from credit costs exploding when Aug. 2 (or whenever the 'default' date is) if there isn't hike in the debt limit. We have more time than that and we simply aren't in a liquidity crisis. We have money coming in and we can adjust spending to pay off debt obligations. [rant]This fearmongering is just absurd. I get calls from my mom asking me if she should have cash on hand for the 'default' date. That is the thing that has really pissed me off with Obama when I saw him talking about how credit costs would explode. It is just untrue. Even if we get downgraded our cost of credit will be the same. You can put that in your sig if you don't believe me.[/rant] What I am saying is that we can't plan to run very large deficits for 10+ years like how we are currently planned to. I think everyone is starting to agree on this point. It seems like you think it is perfectly fine and good to run these deficits for the sake of saving the economy....even though it has been an EXTREMELY inefficient way of operating. We are just throwing money at the problem with no real planning on how growth will be created. We just don't have 7 trillion dollars worth of bridges and unemployment support. It just doesn't cost that much money. We have been using public debts to finance any kind of growth ideas and they have been very costly. We could be using money from private and public companies to finance these growth plans since they have so much of a cash horde overseas, but we aren't trying to unlock that. Finally, we are going to get downgraded even if there is an extention on the debt limit without a plan. I don't think you understand what the ratings agencies are saying if you believe raising the debt limit will prevent a downgrade. They want exactly what I want...raising the debt limit and massive deficit cuts (and hopefully a surplus) over the next 10 years. So there is an incongruency with your argument. Are the ratings agencies wrong or am I wrong? Again....credit ratings agencies are going to downgrade us with any of these plans that are currently out there. I just don't get your argument...you talk about fearing a downgrade, yet you want to continue massive deficit spending by raising the debt limit because it will somehow avoid a downgrade and create massive growth down the road? Has govt deficit spending ever been this ineffective in the history of America? Finally, I think you are under the impression that I am against all tax increases maybe that's what's causing you to think I only want spending slashed immediately to fix the deficit. I am for raising taxes and also finding better ways to stimulate the economy rather than just debt spending. Debt spending is clearly not as effective as it has been in the past and has served to make credit risk as something that must be considered when buying treasuries now.
Speaking from some experience, she might just be being polite. not everyone wants to spend every social engagement discussing/arguing about politics, and even if she agrees with you on somethings, takes the dictum about religion, politics and polite company seriously. Also, if you assume everything the other side says, does, thinks is bat**** insane, perhaps you're the radical, not those who disagree with you. in general, most people want the same things, peace, prosperity, and the freedom to be allowed to live their lives and raise their children as best they see fit. we just disagree on how to get there. you'd be well served by considering the former more often. Agreed.
It wasn't really needed until this week. But then, the S&P ratings wizards, in their top secret ratings headquarters in London, seem to have used their super-secret ratings data (which comes from CBO, Treasury, GAO and other public records that all of us have access to) and put it into their super-secret ratings algorithm...and managed to come up with an amount that is exactly the sameas the "gang of six/grand bargain"-type number that was floated around a few weeks ago. Coincidence? Heh...heh....heh. But hey, we created yet another self-fulfilling prophecy - the beatings of austerity will continue until morale improves.
It still grinds my gears that everyone is running around all scared about the S&P rating of the US debt when S&P proved it cant rate a damn thing properly during the financial crisis that pseudo-contributed to the mess we're now in. S&P and Moody's can go burn.
Until you come up with an legit alternative system, it really doesn't matter how much they f*ed up leading up the crisis. Nothing really has changed.
There is a legit alternative already enacted (from a certain point of view) - smart folks no longer trust the S&P rating outright and do their own research. I would argue that should be the default, but whatever.
The rating agencies are a relic of another era. Before the internet and the accessibility of global financial information, it made sense for 3rd parties to go around and rate companies and bonds. In the US even highly advanced investors didnt have access to financial data of say South Korea. Today, its easier than ever to make informed decisions on global financial decisions. Even the average investor has a plethora of information that no one had access to 20 years ago. Rating agencies are dinosaurs that need to be ignored.
Yeah S&P is a joke. That's why this whole downgrade crap is a bunch of hype. We've already been downgraded to AA by a few countries for various reasons (including China's top credit rating agency) and Egan Jones. This idea of only attacking the deficit thru austerity has become so disappointing to hear. The republicans are just riding roughshod over the democrats with their irresponsible, single minded focus about no tax raises (I honestly believed there was some repub plan out there that raised effective tax rates....I was dead wrong). Then the democrats and the president won't grow any balls and adequately explain why we need to raise taxes in certain areas. It absolutely amazing how terrible of a job both sides are doing in terms of responsibility for the country's future. I was watching CNBC earlier today and some republican was on and David Faber (a very sharp reporter on CNBC) started making the point about revenue increases aka tax hikes since the tax revs as a % of GDP are at historically low levels. Further, he went on to make the point that Bush tax cut don't seem to have done anything for economic stimulus. The response by the republican was comparable to a child who just starts saying "no no no no no no no no" over and over to refute the point and then he went on to make some nonsensical points about taking Washington out of business or something stupid that didn't answer any questions. Who are these losers that get elected? These guys suck.
Not saying the rating agencies are doing a fine job. But having access to information and actually understanding them are two completely different things.
Agree with everything you wrote. The whole thing is just plain stupid. As Donny once said, "makes me want to take my talents to south beach or, more specifically a beach in South America."
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I saw that interview - before Faber attacked him, Cramer did the same. I thought it was refreshing to see people finally calling out tea partiers for being idiots.
Interesting....the CME came out yesterday and said they aren't accepting short term US treasuries as collateral anymore.
