Prediction on the Debt Ceiling

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I was with you with the First through Third. But the Fourth is incredibly dangerous.

The "destroy all shovels" is the ludicrous proposition of a balanced budget amendment. What happens the next time that there is a failure in aggregate demand--or worse, a war that actually needs to be fought?

Government has two levers with which to stimulate or hold back the economy: monetary policy and fiscal policy. In today's world, monetary policy has one, and only one policy objective, the control of inflation and deflation. Which means that fiscal policy has to be able to take up the rest of the slack.

But if you cannot run a deficit, then your fiscal policy levers are jammed. You can't cut taxes or increase spending during a recession. You can't finance a war through bond issues. (There has to be a revenue and expenditure entry in order to move a debt obligation onto the balance sheet, after all).

Furthermore, you cannot issue new currency to match the growth in your economy.

After all, having no shovel is fine, until you need to dig a well.

It's also helpful to fill the hole in order to climb out of it, especially considering the size of the hole that we're dealing with here.

You never know- if we just dig a little bit further, maybe we'll find buried pirate gold. Or the ruins of Atlantis.

The deal appears to be centering on 1 trillion + in cuts up front and another 1 trillion + by thanksgiving. To be decided by a deficit panel. If they can't agree on the second round, a trigger will impose more significant cuts to defense and entitlements. Forcing them to deal to avoid that.

It will certainly hurt the economy to some degree but the question is how much of those cuts happen soon versus later in the 10 year window. David Stockman implied that much of it was deferred, which is probably good for the economy short term. Or at least not as bad. The debt ceiling increase is front loaded over the next 1.5 years. The cuts are spread out over 10 years.

But in general the Republicans avoided any revenue increases and the Democrats avoided any entitlement cuts. Until those two get addressed, this doesn't fix anything.

Cutting Social Security is basically defaulting on your obligation to people who paid into it and is obscene. The Social Security crisis is due solely to people raiding it.

In Britain our politicians are going on about debt etc. And applying cuts to public services.

I don't know why they don't just sell back the banks that they bought a couple of years back.

Entirely true, but assigning blame does not actually solve the problem.

You "solve the crisis" by

• Waiting for the economy to start growing again rather than jeopordizing existing growth with massive cuts in the near to mid future.
• Once the economy starts growing and revenues start rising, be prepared to repeal some of the stimulative tax cuts (particularly those for high income earners), cut industrial subsidies, and start cutting the military budget.
• Use said savings to replenish the Social Security Fund.

Do you wait for the toilet to flush or do you pull the handle?

What makes the economy grow?

It sure is not government meddling. Since Obama and his buddies started to fool around the economy has stagnated.

ruveyn

Boy, you're either intellectually dishonest or obliviously intellectually rigid.

Any sane analysis of the clusterf ... known as the US economy would realize that an unrecognized multi-trillon dollar housing bubble bursting is what's sank the economy. This occurred after the repeal of Glass-Steagall Act during a period of time when taxes were at historic lows. Countries in which workers choose the members of corporate boards (Germany) and have extensive welfare states (Norway) are doing a lot better than Anglo-America.

In terms of growing spending, Obama's been relatively modest.



The fact that he increased the structural deficit a little with his ($500b too small) stimulus bill and faced falling revenues (due to Bush era tax cuts for the wealthy plus some for the rest of America that were enacted at the start of the recession and due to falling consumer spending => less profits => less taxed profits) due to largely cyclical reasons.

The problem with Social Security in particular is that, while on paper the program is completely solvent (and even running a surplus!) the money is gone. It was taken for other things. To replenish those funds, we are going to have to sacrifice other priorities in the future, either in the form of higher SS taxes, lower spending on other things we want to do, or simply continuing to run larger deficits. The funds that were inappropriately diverted away from SS in the past cannot simply be put back- the money is gone. The likely scenario is that the Social Security problem will be resolved by a combination of diverting resources from other areas (combination of tax hikes and shifting money away from another program) and decreasing benefits to retirees. I don't like this any more than you do (and it affects me more than it does you) but the reality is that politicians (Republicans moreso than Democrats) screwed up, and now we have to deal with the consequences of their short-sightedness.

It also occurred during a time when interest rates were at historic lows. So what? The alleged causal link between GLB and the increase in sub-prime lending is sketchy to say the least. The pure investment banks that didn't take advantage of this deregulation to merge with commercial banks held just as much mortgage derivatives as those that did. Pension and retirement funds would have been snapping up these AAA rated assets regardless of whether glass-steagall was repealed or not. There were negative real returns on treasuries at some points in the years leading up to the crisis.

Why were they AAA rated? They were obviously garbage. When brought to congress, the Moody's, Fitch, and Standard & Poor's representatives claimed that their ratings were nothing more than an opinion. That they should have had no real impact on the investment markets. Unf*cking believable. So why now, are we trusting these same idiots to guide the global markets yet again? What's the real difference between a AAA rating and a AA rating? I highly doubt the difference is calculated objectively.

Meanwhile, every person with a foreclosure on their credit rating is hugely disadvantaged. The bankers get golden parachutes and the people lose their homes and get massive interest rate hikes. The banks get to socialize there losses so we pay the bill.

And here we go again.

Perhaps the solution is to have a balanced budget amendment that sets a debt limit or mandates that any debt spending MUST be paid off within X years.

So, if you borrow $10 billion each year, each year's $10 billion MUST be paid off over the next 10 years.

Put a limit on how much or how far off they can push off repaying what's borrowed.

A line of credit...with restrictions.

They were AAA rated because low long-term interest rates were increasing demand for mortgages, causing home prices to increase and defaults on mortgages to decrease. Statistically, defaults were very rare during the inflation of the housing bubble. In hindsight, these rating were obviously bunk, but the government was among the last to realize this.

Nonsense. They knew well in advance that these securities were crap. They even fixed their models to account for the new founded inaccuracies, but then failed to use them. The ratings agencies were paid for their services directly by the banks that held the securities that they were rating. It was an absolute scam.

From: http://levin.senate.gov/newsroom/press/ ... 7c5617906c

"The Subcommittee investigation led to the following formal findings of fact with regard to the credit rating agencies.

Inaccurate Rating Models. From 2004 to 2007, Moodys and Standard & Poors used credit rating models with data that was inadequate to predict how high risk residential mortgages, such as subprime, interest only, and option adjustable rate mortgages, would perform.

Competitive Pressures. Competitive pressures, including the drive for market share and need to accommodate investment bankers bringing in business, affected the credit ratings issued by Moodys and Standard & Poors.

Failure to Re-evaluate. By 2006, Moodys and Standard & Poors knew their ratings of residential mortgage backed securities (RMBS) and collateralized debt obligations (CDOs) were inaccurate, revised their rating models to produce more accurate ratings, but then failed to use the revised model to re- evaluate existing RMBS and CDO securities, delaying thousands of rating downgrades and allowing those securities to carry inflated ratings that could mislead investors.

Failure to Factor In Fraud, Laxity, or Housing Bubble. From 2004 to 2007, Moodys and Standard & Poors knew of increased credit risks due to mortgage fraud, lax underwriting standards, and unsustainable housing price appreciation, but failed adequately to incorporate those factors into their credit rating models.

Inadequate Resources. Despite record profits from 2004 to 2007, Moodys and Standard & Poors failed to assign sufficient resources to adequately rate new products and test the accuracy of existing ratings.

Mass Downgrades Shocked Market. Mass downgrades by Moodys and Standard & Poors, including downgrades of hundreds of subprime RMBS over a few days in July 2007, downgrades by Moodys of CDOs in October 2007, and downgrades by Standard & Poors of over 6,300 RMBS and 1,900 CDOs on one day in January 2008, shocked the financial markets, helped cause the collapse of the subprime secondary market, triggered sales of assets that had lost investment grade status, and damaged holdings of financial firms worldwide, contributing to the financial crisis.

Failed Ratings. Moodys and Standard & Poors each rated more than 10,000 RMBS securities from 2006 to 2007, downgraded a substantial number within a year, and, by 2010, had downgraded many AAA ratings to junk status.

Statutory Bar. The U.S. Securities and Exchange Commission is barred by statute from conducting needed oversight into the substance, procedures, and methodologies of the credit rating models.

Legal Pressure for AAA Ratings. Legal requirements that some regulated entities, such as banks, broker- dealers, insurance companies, pension funds, and others, hold assets with AAA or investment grade credit ratings, created pressure on credit rating agencies to issue inflated ratings making assets eligible for purchase by those entities."