Replies to post #150338 on Tornado Alley (PROG)

[fuagf]

How Washington's politicians downgraded America
6 August 2011 Last updated at 10:54 GMT
Comments (274

The downgrading of America is a humiliation for a nation constantly fretting about its potential decline. It reinforces a very common belief here, that the squabbling politicians in Washington are to blame for many of the country's ills.

It was indeed a major theme of candidate Obama that "business as usual" couldn't continue and, by an effort of will, America had to come together.

The decision by Standard & Poor's to push America into the second division, when it comes to trustworthiness about paying its bills, puts the USA below the UK, Germany, France, Singapore, Finland and 14 other countries. .. http://247wallst.com/2011/02/16/nations-with-triple-a-ratings-which-are-at-risk-which-arent/ ..

The reason it gives .. http://tiny.cc/43sj5 .. is what all America has been saying: Washington doesn't work. The S&P report says: "The political brinkmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed."

A clumsy sentence, yet it encapsulates the frustration of many Americans. They don't think too much of the plan they did eventually come up with at the last minute.

"Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising US public debt burden in a manner consistent with a 'AAA' rating and with 'AAA' rated".

They warn America's debt will continue to balloon and they have little hope of the politicians fixing it.

They say they think dealing with the debt remains a "contentious and fitful process". They say no-one is serious about dealing with the programmes that eat up money, like Medicare, health care for the elderly.

They single out Republicans for ruling out tax rises. "It appears that for now, new revenues have dropped down on the menu of policy options... Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues."

My colleague Robert Peston has an excellent blog on the economics of this, .. http://www.bbc.co.uk/news/correspondents/robertpeston/ .. but what about the politics?

President Obama will doubtless use the occasion to scold Congress again and urge politicians to come together not as Republicans or Democrats but as Americans. Some may be chastened enough to do that for a while.

But is fair to put all the burden on the legislators, as though failure to agree a consensus is a moral lapse? The president is fond of saying that Americans vote for divided government not dysfunctional government.

Yet the system, a much-loved relic of a different age, constructed for reasons little to do with the 21st Century, is almost
designed to bring about dysfunctional government. The combination of a strict separation of legislature and executive, plus
two-yearly congressional elections, all but encourages having different parties in control of different bits of government.

Americans are likely to bemoan the failure of politicians to bridge an apparently unbridgeable gap between two different world views. They may put their faith in Washington politicians, in an outburst of patriotism and goodwill, stumbling on a synthesis that suits all sides. But I wonder whether any of them will muse that the system itself may not be fit for purpose.
http://www.bbc.co.uk/news/world-us-canada-14431319

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When bad figures count as good news
5 August 2011 Last updated at 17:17 GMT
Comments (87)


The overall US unemployment rate in July
fell to 9.1% from 9.2%

Yay! Unemployment is 9.1%! It is a measure of the times that this counts as good news, even though the official verdict is that this is "little changed" from previous months.

Still, we had expected worse, and after yesterday's plunge in the Dow, this would have unsettled the markets further.

For a while now President Barack Obama has been saying that dealing with unemployment is his main priority. And he said it again today, calling it his "singular focus". That is little wonder.

He faces the ghastly possibility of running for re-election against the background of a new recession. ..
http://content.usatoday.com/communities/theoval/post/2011/08/obama-may-have-to-run-in-a-recession/1 ..

Even without a double dip, his aides have told Politico, .. http://www.politico.com/news/stories/0811/60640.html .. in a piece well worth reading, that "the numbers add up to defeat".

The trouble for the president is that he has few shots left in his locker. President Obama's economic advisor writes that "the unemployment rate remains unacceptably high .. http://www.whitehouse.gov/blog/2011/08/05/employment-situation-july .. and faster growth is needed to replace the jobs lost in the downturn".

Few would argue with that. But what can they do? In his speech today, Mr Obama repeated a number of measures:

* Extending a tax credit for most Americans
* Extending unemployment benefits
* Getting construction workers to "rebuild America".

The first two may or may not be sensible things to do, but they are not going to solve the problem. The third sounds like a new stimulus package. Just the sort of thing a Republican House would want to block.

President Obama's only hope is that his opponents do not have any simple solutions either.

Those recommending cuts in government spending and giving the free market free reign may be right that this would help growth over the long-term.

But it would mean more pain in the short-term, and more disruption to the economy.

During election time, politicians can offer glib solutions and gimmicks. But America has had four hard years and lean times teach people to be suspicious of pat promises. They're waiting for a plan without platitudes. .. http://www.bbc.co.uk/news/world-us-canada-14423019

[otcbargains]

"S&P was looking for $4 trillion in budget cuts over 10 years. The deal that passed Congress on Tuesday would bring $2.1 trillion to $2.4 trillion in cuts over that time."

http://finance.yahoo.com/news/SP-officials-defend-US-credit-apf-685948715.html?x=0

[StephanieVanbryce]

Sun Aug 7, 2011 7:23pm EDT ..U.S. stocks, oil, dollar fall on downgrade

By Ryan Vlastelica and Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - U.S. assets fell sharply in early electronic trading on Sunday in response to a downgrade of the U.S. credit rating by Standard & Poor's, while the euro rose on expectations of further bond purchases by the European Central Bank to deal with the euro zone's debt crisis.

S&P 500 stock futures fell 2.7 percent to 1,165.90, suggesting that in spite of the Standard & Poor's downgrade being rumored in markets last week, investors hadn't entirely priced it in. The rumors had contributed to the market's worst week since November 2008.

"We're set up for a pretty substantial selloff, with further erosion of the market as time goes on," said Jeffrey Sica, president and chief investment officer at SICA Wealth Management in Morristown, New Jersey. "There's a real decline in confidence right now."

Among other assets, crude oil slumped 3.6 percent while gold -- typically viewed as a safe-haven investment -- climbed 2.5 percent. The U.S. dollar index .DXY fell 0.3 percent while the euro jumped.

Reaction in the U.S. government bond market was mild, with 30-year long bond futures down moderately at the start of electronic trade in Asia and 10-year futures up slightly.

The 30-year T-bond future fell 12/32 in price at the open to 131-26/32. The 10-year T-note future rose 5/32 to 127-6/32.

Following a conference call held by the European Central Bank on Sunday, a euro zone monetary source said the ECB will intervene "significantly" to protect Italy and Spain from the debt crisis, indicating it would buy government bonds of the euro zone's third and fourth biggest economies.

A statement from the ECB said it would "actively implement" its bond-buying programs.

The U.S. dollar took a further beating against the safe-haven Swiss franc and Japanese yen, though markets were aware of the possibility of intervention by the Bank of Japan and Swiss National Bank to stem their surging currencies.

The dollar fell against the Swiss franc to 0.7570 franc from 0.7671 on Friday. It also lost ground against the yen to 78.01 yen from 78.38 on Friday.

The move by S&P drew criticism from some of the world's largest investors.

"Obviously, we're going to get freaked out a little bit and the dollar will get hit, but it's only going to be for a couple of days," said John Taylor, chairman and chief executive officer of FX Concepts, the world's largest currency hedge fund.

"This downgrade is not that important and if you ask me, too silly. The U.S. is in a much better position than any, I repeat, any European country," Taylor added.

There's more
http://www.reuters.com/article/2011/08/07/us-markets-global-idUSTRE7725BC20110807

............will it get better later ? ..(imo yes,) maybe NOW!

[Crazy Money]

1st President in History... From Triple A to double AA+ lolzzz... that is what he gets for waiting for the last min and then doing nothing... ;-) smart Presidents would have took care of this long ago... easily... without this fan fare... even Clinton told him what to do to not have this happen... lolzzz ... seriously... what a Newbie he is... lolzzz

[StephanieVanbryce]

On S&P, Downgrades, and Idiots

Mark Thoma August 8 2011

This is not going to be one of those posts that laments S&P’s decision to downgrade the US, but then says that S&P was probably right about our oh-so-dysfunctional political system.

No, S&P was flat-out wrong — no caveats. They are, to put it very bluntly, idiots, and they deserve every bit of opprobrium coming their way. They were embarrassingly wrong on the basic budget numbers, as everyone knows now, so they were forced to remove that section from their report, and change their rationale for the downgrade. (Always a sign that you’re dealing with hacks.) [ http://www.treasury.gov/connect/blog/Pages/Just-the-Facts-SPs-2-Trillion-Mistake.aspx ]

S&P’s rationale for the downgrade now is based entirely on their subjective political judgement — and their political judgement is wrong. The brilliant political minds over at S&P said that “the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.” [ There is an excellent link here, BUT it is 8 EIGHT line long .. ;) ]

That sounds like a Very Serious and Sober assessment, but it’s really not. It’s true that the debt limit debate was ridiculous, and that a large contingent of Tea Party freshmen in the House were threatening to not raise the debt ceiling. But here’s the thing: we still raised the debt ceiling, and in such a way that this Congress won’t have the opportunity to use the debt ceiling as a political bargaining chip again.

S&P’s assessment is only remotely serious if you assume that this particular Congress, with its huge contingent of crazy Tea Partiers, is going to serve in perpetuity. But this Congress isn’t going to serve in perpetuity — there are elections next year, and many of the Tea Party freshmen are likely to lose. They won in 2010 because it was a “wave election” in the middle of a very severe economic slump. But 2012 is a presidential election cycle with an incumbent Democratic president. A lot of these Tea Partiers who won in traditionally Democratic districts (and swing districts) are going to lose. In fact, it’s probably even odds that the Dems take back the House.

The simple fact is that the Tea Partiers are almost certainly at the height of their power in this Congress. And no, the debt ceiling debate doesn’t reflect some sort of secular change in US policymaking — the next time there’s a Republican president, House Republicans will be all about raising the debt ceiling, and Democrats won’t engage in the same kind of political brinksmanship. You’d have to be stunningly naïve not to believe this.

There have also been plenty of political de-escalations over the years — Republicans didn’t shut down the government every year after 1995, for instance. After Tom DeLay won the Medicare Part D vote by holding the vote open for 3 hours, everyone claimed that this would be the new normal on all controversial votes. Didn’t happen. There are plenty of one-off political confrontations. Simply assuming that every political confrontation represents a secular change in US politics and policymaking is ridiculous.

(S&P tries to side-step this obvious weakness in their so-called “argument” by claiming that by the time the 2012 elections roll around, it will be too late. Please. The idea that we have to act in the next 18 months in order to meaningfully affect our long-term solvency is patently absurd.]

Look, I know these S&P guys. Not these particular guys — I don’t know John Chambers or David Beers personally. But I know the rating agencies intimately. Back when I was an in-house lawyer for an investment bank, I had extensive interactions with all three rating agencies. We needed to get a lot of deals rated, and I was almost always involved in that process in the deals I worked on. To say that S&P analysts aren’t the sharpest tools in the drawer is a massive understatement.

Naturally, before meeting with a rating agency, we would plan out our arguments — you want to make sure you’re making your strongest arguments, that everyone is on the same page about the deal’s positive attributes, etc. With S&P, it got to the point where we were constantly saying, “that’s a good point, but is S&P smart enough to understand that argument?” I kid you not, that was a hard-constraint in our game-plan. With Moody’s and Fitch, we at least were able to assume that the analysts on our deals would have a minimum level of financial competence.

I’ve seen S&P make far more basic mistakes than the one they made in miscalculating the US’s debt-to-GDP ratio. I’ve seen an S&P managing director who didn’t know the order of operations, and when we pointed it out to him, stopped taking our calls. Despite impressive-sounding titles, these guys personify “amateur hour.” (And my opinion of S&P isn’t just based on a few deals; it’s based on countless deals, meetings, and phone calls over 20 years. It’s also the opinion of practically everyone else who deals with the rating agencies on a semi-regular basis.)

Treasury has every right to be outraged. S&P mangled the economic argument so badly that they had to abandon it entirely, and then fell back on a political argument which they are in no position to make, and which isn’t even correct.

So to S&P, I say: you should be ashamed of yourselves, and I truly hope this is your downfall.


http://economicsofcontempt.blogspot.com/2011/08/on-s-downgrades-and-idiots.html [ AND ]

http://economistsview.typepad.com/economistsview/2011/08/sp-was-flat-out-wrong-no-caveats.html