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» Hatrack River Forum » Active Forums » Books, Films, Food and Culture » U.S.A CREDIT downgraded.

   
Author Topic: U.S.A CREDIT downgraded.
Danlo the Wild
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From, AAA to AA+

from 0% interest on the $17 trillion dollar debt to ?????

THE SECOND LEG IS DOWN!

BEN BERNANKE FTL!

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Samprimary
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for more on the story we take you to a man wearing a sandwich board sign and nothing else. Danlo, I hear that you are reporting from a street corner. Can you tell me, do there appear to be any apocalyptic torments being visited upon the ignorant sheeple?
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Stone_Wolf_
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Baaaaa....run in fear...stuff is happening that we don't understand...baaaa! (Is it ironic that I'm playing the part of a sheep and my name is Wolf?)
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Mucus
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(Crossposted)

Personally, I've been thinking something along the lines of this post
http://baselinescenario.com/2011/07/14/so-what/

Particularly
quote:
Every major institutional investor has its own opinion about whether the government will default next month. Moody’s has no competitive advantage in this game, so it’s just one more opinion, and not a particularly trustworthy one.
If anything, as is pointed out in the second paragraph, they're a rather slow indicator.
Oh well. (Time to invest in VTI?)

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Black Fox
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Quick, someone start a war in Israel so the apocalypse can get started.
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Lyrhawn
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Well, the interest on the debt was never zero percent, we pay s huge interest bill every year. But, what cost might this move have on servicing the debt? Or will it only affect future borrowing rates? To what degree can S&P affect us with Moodys and others joining in?

Seriously, despite the OP posted, I'd love an answer.

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SenojRetep
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From what I understand (and I'm certainly no expert), there will be little direct impact from institutional investors as long as neither of the other two major credit rating agencies down grade us as well. I would guess the major risk is a panic, but given that no one panicked in the run-up to the debt ceiling vote, I doubt anyone is likely to panic at this. That said, I'm glad they chose to announce it Friday afternoon.
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Orincoro
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quote:
Originally posted by Lyrhawn:
Well, the interest on the debt was never zero percent, we pay s huge interest bill every year. But, what cost might this move have on servicing the debt? Or will it only affect future borrowing rates? To what degree can S&P affect us with Moodys and others joining in?

Seriously, despite the OP posted, I'd love an answer.

It will have a slight impact on confidence in US treasury bonds, but not that much. The big impact of an across the board downgrade would be costlier future borrowing, and costlier financing of the current debt. Since the debt increases as we borrow more for short term debt service (which is sometimes advantageous if the rate of borrowing is lower than inflation), we would be unnable to finance future debt payments, and would have to then pay off the bonds directly. That would suck money out of the general fund, and decrease government spending. Since a slow economic cycle is the ideal time to borrow when the rates are low, because you can pay it back with a growing economy, that would have an adverse long term effect on the size of the US economy, and its ability to expand quickly.

In the short term, so many funds are tied up in treasuries, there would be a lot of instability in the investor market, as consumers and brokers shifted to other more secure bonds. But really, this is not likely to occur.

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odouls268
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Well, they did tell the US up front that it was going to be done unless certain conditions were met. The "compromise" met none of those conditions. If A then B.
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Mucus
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Man, quite the stock market party.
That is all.

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Geraine
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Wait wait wait.... Before the debt deal was completed we were told were told we had to raise the limit or else our credit rating would be downgraded...

We passed the debt deal and got downgraded anyways. Now we are being told that it doesn't really matter.

I'm confused. Does it or doesn't it matter? I was under the impression a downgrade causes interest rates to go up, among other things.

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Mucus
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If the limit was never raised, then the US would pretty much have to default eventually, and the rating would be a moot point. There's no point in having a rating that measures "what is the chance of a US default" when the US is already defaulting.

In a "normal world", a credible downgrade would cause interest rates to go up as investors shun the United States bonds and go elsewhere. Instead, in our world, the collapsing stock market everywhere is sending investors into treasury bonds as a safe haven, lowering the interest rates, oddly enough.

(Not really oddly, this safe haven thing has been going for a while)

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odouls268
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quote:
Originally posted by Geraine:
Wait wait wait.... Before the debt deal was completed we were told were told we had to raise the limit or else our credit rating would be downgraded...

We passed the debt deal and got downgraded anyways. Now we are being told that it doesn't really matter.

I'm confused. Does it or doesn't it matter? I was under the impression a downgrade causes interest rates to go up, among other things.

Moody's and S&P made it clear prior to this whole mess that the credit rating WOULD be downgraded unless the United States met certain guidelines (primarily immediate budget cuts, the degree of which changes depending on the source. All the sources agree it was in the trillion dollar range).

The United States congress chose to approve a bill which met none of the stated requirements, thereby leading to the promised downgrade in our credit rating.

Yes, this is in spite of avoiding "default" which basically has amounted to the Obama administration's version of "Weapons of Mass Destruction." It was the loud catchphrase upon which they could hang the attention of the American People.

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BlackBlade
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quote:
Originally posted by Geraine:
Wait wait wait.... Before the debt deal was completed we were told were told we had to raise the limit or else our credit rating would be downgraded...

We passed the debt deal and got downgraded anyways. Now we are being told that it doesn't really matter.

S&P specifically warned that even if a deal is reached, the nature of that deal and how close to the deadline it happened could still result in a downgrade.

That was in part what made all of that stupid posturing so dangerous. People are quickly forgetting that had say the White House done what the Republicans had done just one day ago on Monday, and said, "No deal, that is all." We 99% would have defaulted. The Democrats and Republicans inability to come together on something that should have been routine and which had such stark consequences was nothing short of ridiculous. Investors don't like ridiculous when they talk about investing, less'n ridiculous is followed by the word "profits" and attached to a "zero liability" clause.

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SenojRetep
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S&P does seem to be calculating in Political Risk (poorly, according to Dan Drezner), but the bigger factors in the downgrade were: (1) Republicans' intransigence on significant revenue increases and (2) Democrats' intransigence on containing growth in entitlements, particularly Medicare. To my understanding, the downgrade was less a result of dissatisfaction with the procedure and more a result of evidence it provided that no one's serious yet about containing mid- to long-term debt.
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Darth_Mauve
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S&P looked at the @#$@# way the politicians went about playing chicken with the idea of not paying our debt. They said, "the Govt can pay the debt, but the politicians may not let them." They said, "the Govt could easily pay the debt by increasing some revenues, but the politicians won't do that, so they are only cutting. That won't work for long."

Finally S&P said, "the US Govt is blaming us for not knowing what we were doing with those mortgage derivatives. They threaten us with over-site, with new rules and regulations, with anti-monopoly prosecution. We have power, lets make sure they don't threaten us any more."

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Orincoro
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quote:
Originally posted by Geraine:
Wait wait wait.... Before the debt deal was completed we were told were told we had to raise the limit or else our credit rating would be downgraded...

We passed the debt deal and got downgraded anyways. Now we are being told that it doesn't really matter.

I'm confused. Does it or doesn't it matter? I was under the impression a downgrade causes interest rates to go up, among other things.

The deal was wildly late and wildly insufficient, and the downgrade was one out of three major agencies, meaning it has no real short term significance.

Also this is indicative of the structural flaws in world finance- when the US debt is the bedrock commodity, and its value is questioned, the resulting panic leads to it being valued EVEN MORE. That a group of idiot freshmen senators have the power to hold the world economy hostage in this way reveals some rather poor planning on our part.

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Samprimary
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quote:
That a group of idiot freshmen senators have the power to hold the world economy hostage in this way reveals some rather poor planning on our part.
Credit monitors and economists the world over pretty much treat these guys as a phenomenal joke. Or at least did, before they realized that this was about more than how unworkable their economic policy is, but that they also could stand ready to launch monkeywrenches into the world economy, in order to get their way.
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Danlo the Wild
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Can anyone name me a single thing we fixed since the great almost economic collapse of 2008?

It appears giving the banks trillions of dollars through TARP I-34, Quantitative Easing 1, 1.5, 2.0 and ZERO PERCENT interest rates for ever boosted banking and corporate profits but didn't help the economy.

So....

If Ben Bernanke's policies lead to the Dollar collapsing in a 3-7 day hyper inflationary event, would this lead to a period of lawlessness?

And please remember, EVERY FIAT CURRENCY IN THE HISTORY OF MANKIND HAS HYPER INFLATED AND DIED.

...though, never, ever before on a global reserve currency scale.

Also, does anyone else see the irony of spending 10 years, trillions of dollars and thousands of lives fighting the war on terror when it's the banks and politicians who will destroy our nation?

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Danlo the Wild
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Quantitative 3 announced tomorrow or an 800 point drop?

Wait. Maybe, the ECB printing $1.5 trillion more dollars to buy Italian and Spanish bonds will fix everything.

LAWL

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Mucus
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I think the ECB prints Euros.
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Danlo the Wild
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The ECB does print Euros.

Europe. America and Japan's solution to all of this?

PRINT PRINT PRINT PRINT PRINT PRINT PRINT

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Orincoro
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quote:
Originally posted by Danlo the Wild:
Quantitative 3 announced tomorrow or an 800 point drop?

Wait. Maybe, the ECB printing $1.5 trillion more dollars to buy Italian and Spanish bonds will fix everything.

LAWL

You understand that governments don't just give themselves money that they print up when they want it... Right? I mean, do you believe that's how this works?
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Danlo the Wild
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Are we talking about the Fractal Banking system?
Debt monetization?
Treasury Redemptions?

Central Banks to Treasury to Banks to People

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Samprimary
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Danlo's right. We are all educated stupid. The banks are simultaneous four-day creation.
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BlackBlade
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quote:
Can anyone name me a single thing we fixed since the great almost economic collapse of 2008?

I fixed a water heater, an air conditioning unit, and my computer desk. And that's just off the top of my head. I may even go get a kitten and get him/her fixed.

So there, you can rest easy knowing I've at least fixed *something* these past few years.

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Danlo the Wild
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Trying to rest easy BlackBlade, but I have a migraine.

ZIRP for Infinity! That ought to fix things.

Ben Bernanke is evil. No?

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Danlo the Wild
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-620. +420. -530. +420

The waves grow longer.

SKYNET tests its wings.

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Rakeesh
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That's crazy and ridiculous even for you!
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Danlo the Wild
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bans on short selling

markets closed due to hackers

post office cuts 120000 jobs
or +.1 to national unemployment numbers

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Danlo the Wild
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High Frequency Trading plays a very large part in the Markets.
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Danlo the Wild
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ooo, looks like the Dow Jones futures are down.

What will today bring?

-550?

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