It is quite likely that we will see some interesting market action come Sunday night as this news is digested. But I will stick my neck out and say that once the dust settles a bit the ratings drop is not going to have a significant effect. (for now)
It looks as if the US is going to have a split rating. (AAA {equivalent} by Fitch/Moody’s and AA+ by S&P) If this were a high-grade corporate credit the split rating status would make no difference in how the underlying bonds trade. I doubt that the S&P action will have a different (lasting) consequence.
What was S&P thinking when they pushed this on August 5th? Have they no sense of timing at all? We have just gone through the most gut wrenching market week in three years. This action could be very upsetting to global capital market conditions. While I think that is not going to be the case there certainly is risk for things to become unglued for a bit.
While I don’t fault S&P for their action (they said they would do this on April 18th) I think they made a big mistake with bringing public last Friday. For this, I would give S&P a single D rating.
We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending is less likely than we previously assumed and will remain a contentious and fitful process.
My read of this is that they are blaming the politicians. As well they should. I hope that this is the message that comes to the public. It’s the idiots in D.C. that did this to us. They could not come to a compromise when the Nation required that they do so. The “Deciders” let us down. The economy will pay a price for what has happened. I truly hope that some of those Deciders pay a big price too. I think they will.
All of the big hitters in Washington have egg on their face today. But the one with the most egg is Tim Geithner. He said that a downgrade would not happen. It has. I think Geithner will have to go as a result. I think his “resignation” announcement will come before September 1st.
Last night the Fed gave the S&P action a “We don’t care” response. There will be no change in how the Fed adjusts collateral requirements. There will be no change in their calculations of risked based capital for financial institutions.
It’s predictable that the Fed would take this position. What else could they do but ignore the downgrade? A key question is how central banks outside the US look at US collateral. Will any of them change the haircuts on US paper? I doubt it. But if I’m wrong and we see the Bank of Canada, England or ECB do anything regarding collateral ratios there will be hell to pay. That’s the best reason why they won’t do anything.
The Chinese downgraded the US some time ago. They don’t think so much of our paper. Russia is a big holder too. I would expect that we see evidence in the coming months that these two are going to be lowering their holdings. I don’t expect to see some big headline that says, “China to sell”. That’s not going to happen. The critical issue is, "Will they buy more?" I doubt they will.
The Russians must be jumping for joy at this. As this plays out we will see very clearly who are friends and who are not. On this issue, these two are not our friends. Yet they hold a total of $1.5 trillion of our paper.
S&P lists the entities related to the US that will have their ratings dropped. Fannie, Freddie and Ginnie Mae have been cut. Together that is about $6 Trillion worth of paper.
S&P has said that the ratings change for the US does not impact corporate ratings. But the states and cities are another matter. To me it's just nutty to think that the city of Syracuse is a AAA and the federal government is worth less than that. No doubt but that Muni downgrades will be forthcoming. This should have happened years ago.
If I was a rating Agency I would look at the policies of the government as a whole when setting a rating. Clearly the federal government is running up too much debt and S&P has said, “No mas”. The rating agencies want to see saner and more sustainable policies from D.C. They do not want to see kick the can down the road stuff.
There is no greater “kick the can” policies than those of the Federal Reserve. They have cut interest rates to zero. A desperation policy that is leading to big distortions in the basic funding markets today. They have bought Trillions of government paper. They have facilitated the expansion of US debt. They are part of the problem when it comes to long-term fiscal sustainability.
If the Fed announces another LASP (QE3) I now anticipate that the rating agencies will react negatively. More QE = More downgrade. I hope Bernanke and his cohorts get this message. Their hands are now tied at so many levels. They are pushing their own limits on inflation targets. They know that ZIRP is a failure. They understand that QE (LSAP) has only marginal benefits (at best) and they also understand (and have acknowledged) that additional QE efforts now come with more risk than reward.
It would have been helpful if the S&P had provided some thinking on this critical issue. S&P was willing to take on the entire legislative part of government. But they didn't have the balls to take on the Fed. Interesting.
We are in a very high risk situation. In part because the EU is coming apart at the same time we are.
It's very damn dangerous.
Rates are not going to explode.There also will not be any large selling going on..As Bruce says some may quit buying however..The Fed owns the largest majority of them and they will simply continue to play 3 card monty with repurchases..
If China, Japan, and Russia stop buying bills, then who will buy the ~$2T of rolling and new debt for the rest of the year? The FED? Welcome to Germany, circa 1923. Without (big) foreign purchasers of bills, we're there. Unless I'm missing something?
Yes. And so does this mean that the market simply flonders for a while - comments PLEASE.
Bruce
China and Russia have NOT done us in, we are our own worst enemy. Most of the citizens of this country are ignorant dupes You cannot spend your way out of a SPENDING problem. S&P had the balls to make their case. We are living in a Ponzi economy leveraged by fractional reserve fiat currency regime. At some point the Fed will have to RAISE rates to defend the dollar which is nothing but a piece of paper with numbers on it. The FED has been neutralized IMO and Monday has the potential to be a crash day with Bonds, Stocks and Dollar sharply lower. This business of monetizing bad debt has come to an end. REAL reforms and sharp cutbacks are now needed to correct this mess.
Interestingly, the Treasury, Fed and Administration stated that if the Debt limit was NOT raised, it would be Armageddon because of debt downgrade. Now that the debt downgrade has occurred AFTER they cobbled together a bogus deal and raised the debt limit, the Treasury, Fed and Administration are assualting S&P credibility.
It is going to be a painful transition and as a nation we will need to honestly assess our priorities. I personally don't believe that it will happen until the markets melt sharply lower and the old edifices to greed and control are destroyed. It will take that kind of collapse to force a reassessment. This is 40 years of deficits and a ponzi finance collapse of a DEBT based FIAT reserve currency.
Can I really tell you how I really feel?
The Tea Party agenda is to hold a vote on the debt ceiling, demand cuts to social services, then promote spending on Defense, and earmark bills, in order to speed up the next vote on the debt ceiling: Rinse and Repeat
S&P doesn't care about that, except it hamstrings the Fed. Here is the rubicon moment, when Fiscal policy finally jumped up and bit Monetary policy in the ass. All the contentious hearings did nothing to slow down Greenspan or Bernanke, but a handful of angry, and misguided Tea Party activists did.
Someone needs to mention the structural problems in the economy, taking away peoples jobs and then taking away the safety net is classic Asshole Behavior.
we are back in the 30's but we got out with 3 (Three) politically charged groups, the Isolationists (of which Bush was when he campaigned in 2000), the Protectionists (of which Bush Clinton and Obama are clearly opposed, and thus we oppose them), and the Pacificts, on which most politicians could go either way, if the public showed a preference. the economy was finally coming around in 1940 when the war started. Those policies helped America stay out of the war (and Europes problems) and made us strongers as a result. Rinse and repeat
You're describing the Tea Party as some uniform voting block with identical opinions on every issue. Members, affiliates and hangers on of every party, movement and idea will say stupid things. Unfortunatelly, what they say reflects on everyone who is assigned the same label.
i agree with what you say, consider the billionaire sponsors may have something to say, to say the Tea Party has been or will be hijacked by corporate interests is an understatement. Bush wasn't who we thought he was, Obama wasn't who we thought he was, and should any of these people get close to the reins of power, they are going to be a bundle of surprises.
There certainly are some war-mongering tea partiers, but they are a diverse group. Many are in the Ron Paul peace and liberty camp. Just saying.
They wanna make me go into rehab! I said no, no, no!
Mises forever, bitchez!
Bruce: there are some logical inconsistencies in this article. First you mentioned that you agree with the downgrade reasoning that the idiots in D.C. couldn't get their act together to raise the debt ceiling and put the country into trillions more of debt, then you close with a well-deserved slam on Keynsian theory (debt=growth). Seems at odds. If we were really really really concerned about the debt, and there was anyone with true leadership in D.C. (Ron paul?), then we would have just bit the bullet now and not raised the debt ceiling. Raising the ceiling GUARANTEES the country will become more insolvent (and deserving of further downgrades).
When it comes down to it, hardly anyone wants to bite the bullet, very few want a real reset to a true economic value driven economy. Nearly everyone is addicted to the debt. That is why the debt ceiling was raised. Everyone wants to continue the party. No one has the balls to put a stop to it. There is a lot of talk on ZH about ending the Ponzi but I seriously doubt even 10% of posters are really ready for a deflationary depression, even if it would be quick by historical standards, even if it is the best moral and rational choice.
Therefore, we will get what we deserve. Hyperinflation. It happens everytime.
Wishful thinking Pete Peterson! The downgrade is nothing more than 'banker scorch earth play' just as Hank Paulson's $700billion blackmail ploy to give bankers $700 billions of taxpayer money. They need more budget room for interest payments to the bankers at the expense of Social Security. Almost every 'Wall Streeter' said that the downgrade will come unless they make significant cuts in Social Security and Medicare. So tell me this is not a ploy!
BK you continuously expose yourself as a banker shill in almost every post of yours.
Your logic is really hard to fathom.
I'm nobodys shill. I just read and write. I suggest you do some reading. If you did, you would also conclude that unfunded entitlements will overwhelm us. That's not just noise. That's a fact. Wake up and smell the coffee.
BK, the concept of unfunded liabilities only exists in doublespeak. In the real world current liabilities are paid out in cash. Interest payment on US debt will sky-rocket by far in excess of any Social Security shortfall, but, who is worried about that?"Interest payments are not 'unfunded liabilities', neither is Defense Spending or 'tax credits', only Social Security is unfunded liability, yet it's the only program that is actually funded.
So you are not a shill. OK, your belief system is made up of the same chromosomes as the bankers'.
Bruce, our problem is not just unfunded entitlements. And SS is something we PAID into. The real problem is other wasteful govt spending programs such as wars, housing etc. The markets will FORCE us to revisit our priorities, make hard choices and default may be the best thing yet because future lenders will think twice about lending money to an entity that has no control on spending. The first rule of holes, WHEN YOU FIND YOURSELF IN ONE, STOP DIGGING!!! If the problem is too much debt, how can more debt be the solution?
@tictawk: "And SS is something we PAID into."
It sucks, I know, but we really didn’t pay “into” anything other than a big generational ponzi transfer that was sold as “social insurance” but never funded on insurance principles, so at the end of the day there’s nothing there unless new participants come in or the rules are changed somehow. Maybe consider it money well spent for social peace for the last 75 years. I believe that was the premise for Bismarck’s original policy in Germany, so working stiffs wouldn’t upset the ruling order (took WWI for that). Or consider it badly spent as the price of benefits our elected Representatives and Senators promised in order to get elected. Anyway, it’s not coming back to us at anywhere’s near the value that we paid, and increasingly likely not even at the same nominal rate(s) we were led to believe. We’re like the guys at the end of the line of anyplace where things are being dispensed (say, free movie tickets, or bank run, or soup kitchen) who are being told there’s no more, even though what they’re supposed to be dishing out was stuff we gave them.
Well said. I'm doing a SS piece tomorrow am. You might like it.
bk
If you don't stop digging you will find yourself... surrounded by a lot of Chinese
At least one person gets it. The whole point of the downgrade was to go after social security and medicare. The rest is just padding and the usual malarky about "fiscal responsibility", a phrase that gets trotted out everytime there is a risk that some disabled person might get some assistance.
Bingo! Thank you. That solved this puzzle for me.
The Obamacare one sixth of the economy hijack and revenue growth cannot be endangered so they have to have something of substance that can be "cut" without endangering the growth of the government. Medicaid is too important to their youthful dependent constituencies and state funding support. Medicare and SS "cuts" will come out of growth of benefits and age qualifications that will not hurt anyone right now, but NOW they have their excuse for going to town on those programs and showing all kinds of expenditure reductions that won't hamper their government expansion plans.
I not so sure the ratings decline will mean anything. All that bond money has to go somewhere. If the whole world is being moved down a notch, the difference is negligible. Ratings are ultimately relative, no. The bond market is about 100 trillion dollars with the US being 40% of it and Japan being 20%. I mean, where are you going to go? Canada? The government bond market is about 2.5 trillion.
I not so sure the ratings decline will mean anything. All that bond money has to go somewhere. If the whole world is being moved down a notch, the difference is negligible. Ratings are ultimately relative, no? The bond market is about 100 trillion dollars with the US being 40% of it and Japan being 20%. I mean, where are you going to go? Canada? The government bond market is about 2.5 trillion.
the "idiots in DC" didn't do this you did. all of you did. and so did i of course. we've been demanding as much government as possible to solve "our" problems ever since 9/11 and whether we wanted it or not we got it. and as is so "effectively" opined on this space "it's really not news until there's a blood bath." careful what you ask for of course...which should be true of all of us, no?
I partly agree and disagree. Of course its our scum politicians that have done this but we shouldn't be lettting our fellow citizens off the hook here as innocent victims. How many polls still show that a majority want our debt problems solved without cutting entitlements?
While politicians maintain power by creating class warfare, pitting citizen against citizen, as a group the citizens are the fools that lap it all up.
Speak for yourself - I never look to gov't to solve problems, because I know they are not competent enough.
OT - I've been laying low for awhile - guess I should have used a psuedonym!
Yesterday was a historic event - truly mind blowing in many ways. I am sure that many in the S&P offices spent several sleepless nights pondering the outcome of their rating - thankfully they stuck to the methodology that is accepted globally. I therefore find it offensive to read so many posts here that show a nationalism driven by pure ignorance, or worse: so the author was Canadian - so what.
Or are we to conclude that ratings by American analysist (94% of whom have not traveled outside the USA if passport statistics are used as an indicator) on any country in the world should be taken with a heavy dose of salt, laced with nationalism?
Lets face it, if you are a nationalist then, by ratings, you are a AA+ rated racist: lacking the conviction needed to openly voice your half-baked opinions.
The S&P rating (full text) was well thought out and argued using solid logic applied to a globally accepted methodology that derived very clear conclusions: the same would be true if the author had been black, yellow or even green (e.g. ET)!
The comentary against the rating, be they ignorant nationalistic posts or so called 'professional' or even 'official' responses, lack any meaningful arguement, show complete denial and are laced with rantings of sulking children: a clear indicator for the root cause of America's problems at all levels today.
"The S&P rating was well thought out and argued using solid logic applied to a globally accepted methodology that derived very clear conclusions:"
Was that the same solid and well thought out globally accepted logic that got us here? How’s your memory? The same solid logic that rated junk as AAA, right up until the point when people were using it as toilet paper? The same logic that has Belgium(lol with no government for over 2 years) at a similar rating, and the UK with AAA… Do me a favour, if they could swing it for they're pay masters in wall st, why not their country? There is something bitterly sardonic about playing a pivotal role in a generational financial crisis, then sticking it to the counties that you were instrumental in fucking up. Remember, no rating agencies, no crisis, its actually that simple.
Thanks as always for the analysis BK.
One of the things that makes this interesting for me is that we're accustomed to "flight to quality" in circumstances like these, but the conventional notion of "quality" is itself being reexamined right now. It will be interesting to learn what consensus, if any, emerges over the weeks and months ahead.
Of course it is long past time for our elected representatives to show real leadership and address the situation in an intellectually honest manner. But I also know things will have to get a lot worse before that happens.
BK writes in
bold lettering the US fiscal house cannot be put in order without “substantial cuts in both Medicare and Social Security“.But he makes no mention of needing substantial cutbacks in global militarism,
No mention how government indulgences to the big pharma/health insurance industries hugely magnify health care costs, and make those costs unmanageable.
No mention how subservience to global corporations and militarism has led to underinvestment and mal-investment at home, debilitating the economy.
No mention how financial and trade policies have siphoned away wealth and productivity.
No mention how the top-heavy concentration of wealth stifles the economy and promotes self-serving elitist politics over the common good.
No mention that anything else needs any correction.
Because it is the only and most important recommendation made by BK,
it essentially amounts to a recommendation by him to lessen support for the retirement and health care of US citizens in order to continue supporting global war merchants and financial racketeers.
And don't forget to call out in capital letters FREE TRADE and OFF-SHORING. After all, that's where all the jobs went as industry after industry has been packed up and shipped away by multi-national corporations....not only without penalty, but often with subsidies for doing so. We have been paying to be raped and pillaged.
Demand a dramatic change in the way we are governed. Take most of the money out of politics with one, simple, common-sense rule. Only allow actual registered voters to make political contributions of ANY kind. No corporate money, no union money, no PAC money (and this would automatically eliminate foreign money, too). Suddenly, everything would change. K-Street would quickly go out of business without fists full of dollars to trade for special interest legislation. It would no longer cost $15million for a Senate campaign, and surely not $billion for a presidential election. We might get a new breed of candidates on the ballots. The kind who had not already sold out to one or more special interest groups just for seed money and fertilizer.
It is bigness that is killing us. Big corporations and big government do all they can to skim from the citizenery and must be controlled. We are now seeing the results of allowing them to control us, rather than the other way around.
Its called "neoliberal capitalism." When President Eisenhower left office he warned about the military industrial complex, we didn't listen to him and now we have a even more powerful worldwide beast, the military, industrial and financial complex.
+1. Caught that point also, and agree that statement has political misgivings without being impartial.
2012 budget for medicare + SS = 1.5 Trillion. Military = 400b.
Don't get me wrong. I want the military to cut too. I don't want any more of this Iraq stuff that costs trillions and gives nothing.
There has to be big numbers cut. Yes cut the military. But you can't get ahead of this problem without SS/Medicare on the table.
Sorry.
$400 B for the DOD? http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/defense.pdf
The DOD will get 553 billion as a "base" in the 2012 budget but that counts on 78 billion in projected savings via reforms through 2016.
But a more realistic number is far higher since the DOD is not the only part of federal spending related to security, there is the CIA, NSA, DARPA, and other secretive dark pools of expense, there is the VA which will spend 124 billion, there is much of the dept. of Energy related to weapons (41.4 billion), Homeland Security at 47 billion, much of state dept.s 32 billion is for propping up other nations either with direct military assistance or domestic assistance that allows them in turn to spend on their military. These days most of NASA's 18 billion budget is military related. Hell, even a substantial chunk of the interest on the debt is attributable to borrowing for military spending.
A closer estimate of total military/external security spending with all related costs in other departments of government would be above $700 billion per year and it would not surprise me to see that it was north of $800 B.
On the other hand, you mention SS as if it were in the same category of spending as any other appropriation that is funded by general revenues. It might well be funded in (growing) part via general revenue to a large extent because the trust fund has been raided for decades but it was an insurance program that would be perfectly able to sustain itself with realistic rates for premiums, the fact is that SS needs to be means tested and to have the caps lifted or even abolished on how much income is subject to withholding. The fact is the current $110,000 limit barely keeps a family of four in the middle class in most metro regions (where people actually live), and by not taxing income over that limit we are simply making a gift to the wealthy.
The real place to cut and cut hard is in healthcare. That sector is now eating our collective lunch at 18% of GDP and soon to top 20% even though it does not even provide care for all Americans. If it were up to me I would abolish Medicare, Medicaid, outlaw the AMA and private for obscene profit healthcare insurance. Medicaid alone is bankrupting the states because they are locked into a Faustian bargain with the federal government which for wealthier states matches the program expenses of states for the poor dollar for dollar at least, some states get much more. But, it forces states to spend on healthcare in order to get more from the federal government, and all the while the redundent bone palaces and greedy AMA members are eating it up. California alone spends almost 30 billion per year on this one program.
I specialized in healthcare finance in my career, and prior to getting my finance degree worked as a medic in the service and as a nurse in civilian employment, as a disabled vet all my care comes from the VA so I am in a good position to comment about this. The care I get from the VA is excellent, wait times are low, and I pay not a dime for it. Not so much as a copay. It might not be the Cadillac care some of our more spoiled wealthy are used to, but it is better care than 90% of the world has available to them, and as a result I am healthy. We could have a VA type healthcare system that covers every citizen for half what we now pay to cover a small part of the population well, and a large part of the people in only partial care, that is you might have insurance but woe to you should you ever need to use it because even a share of cost is a bankrupting event on most health plans. Not to mention the 50 million with no coverage at all. It is a disgrace, even Cuba has better metrics of healthcare like infant mortality rates and longevity than we get for our two trillion per year.
Lifting employer healthcare premiums from the back of business would give the American economy a trillion plus dollar per year stimulus. Employers pay 67% of all the 2 trillion spent on healthcare. Decent and affordable care must be recognized as a right and we should be making it our highest national priority not to allow this theft which is bankrupting us to continue.
As soon as we start to view the "medical system" in the U.S. as the parallel to the TBTF banking system, then we'll be able to combat the costs. Most moves made legislatively are to the benefit of for-profit medicine and drug companies... period. I think we may be viewing it wrong by wondering "how to pay" for medical care rather than viewing the problem as "how to fairly charge" for the care. The doctors I know would much prefer to treat patients, with less fear of being sued, than expend a large part of their practice's income on filling out forms.
Seems you are pushing for a two tier system -- which is where I think we are headed regardless. Govt provided BASIC care ("not Cadillac") and a private market for those willing to pay up for better care / service. Only concern is I think the best docs will end up not taking govt insured folks (similar to many not taking Medicare patients now). But there will be a difference in care level. We can not afford Cadillac care for everyone. [plus the major doc shortage is coming]
However, I do not view "decent and affordable care" (not sure how one defines that - median worldwide care?) is a right. We have too many people finding "rights" in lots of places. This country was not designed for such and we can't afford it --- except some more massive redistribution.
Bob, you mention something extemely import on the horizon....a shortage of doctors.
We should do for the field of medicine what we did for Engineering in the 60's space race....essentially provide scholarships for anyone qualifying. Make a mediacal degree free, then see how many doctors we have. After all, we subsidize the hell out of med schools and hospitals anyway. Do the same for nursing, and allow for Physicians' Aides to do much more than they can today.
There are many solutions to our problems, but they all require political will. Nothing changes because our pandering politicaians allow special interest groups to write legislation in exchange for donations....and nothing will change until we fix this one simple fact. We are governed by those who benefit from this perverted form of legalized bribery.
A market solution will be needed as well. What the average doc makes for the hours worked, administrative overhead risk, and the always present threat of lawsuit, I honestly do not know why one would be a doctor.
Added on top of that, they soon will be told by BHO (CMS board ala Obamacare) how to practice medicine. Without some tort reform and scrapping the central planned Obama-determined medical protocols, why would anyone be a doctor?
I hope you all realize that med school admissions are regulated and strictly limited by the AMA don't you? And there already is a shortage of doctors who are willing to be GP's, especially in rural areas, because money is at the heart of the industry, and that is what has to change before we can get medical costs under control no matter who is paying for it, but for now what we have are redundancies, multibillion dollar bone palaces, and when was the last time you saw just a hospital, they are now campuses of 20 and more buildings filled with expensive specialists. Like I said, the VA system provides adequate care with good results for half the cost. That is why I am against the government programs that now exist, they pour money into the current medical system while doing nothing to contain it's costs. Private insurance ditto, all this stream of money is doing is making care more expensive, when you have no competition and you create monopolies in a field where what you sell is viewed as a right, and is so desperately needed like healthcare, there is no restraint on pricing.
As to doctors and other medical personnel not being willing to work for a paycheck of something like 125,000 per year I say TFB for their hard luck, they can go drive a cab then. Most doctors elsewhere work for the government and think they have the best job in the world, they love it and would do nothing else, only here in the USA do you have venal creatures getting into medicine for the money, and as far as I am concerned those we can do without anyway. Private practice as it now stands is very expensive to operate, acquiring a book of patients, a nurse, a bookkeeper, a receptionist, massive student loans for many, the office and all of that grossly overpriced equipment. Most of the doctors in the VA system are clearing 125k and have none of that overhead nor do they need to repay loans, the only thing I ever heard them bitch about was paperwork.
I would be willing to go along with a two tiered system where you have to option to pay for Cadillac care on your own or via private insurance but only if you sign a bit of paper that says you will be denied care at the government facilities unless you can prove you can pay for your care up front, otherwise what will happen is that people will opt for private care as long as they are relatively healthy and low cost, but the moment they get really ill or old or contract a very expensive disease like cancer or HIV they will jettison the private cost and go on government care sticking the rest of us with all the most expensive cases. And even then I am skeptical a two tier system can work, and if comes down to it I would rather see private care extinguished for a public care system that covers all people without bankrupting them rather than rationing what is so needed by ones net worth, that is just wrong in the eyes of anybody with any compassion. As I said, I was in healthcare and HC finance for decades and I have seen way too many people face the firing squad of medical bills that would leave even fortunate families in poverty even though it is not the reality of their disease that makes it so costly but rather an arbitrary decision on costs by so called nonprofits mostly that are driving billing to absurd and invented levels.
The last thing I want to say about it this, it must change and it will change because it is bankrupting us, at the rate we are going there will be no USA if we continue to allow this out of control private for obscene profit system continue to rob us of every dime we have. I am not talking decades either but a few years before they tip us into insolvency on an irreparable scale.
Many thanks for your informed opinions!
annual military spending is not 400b, but over 1 trillion.
Payroll taxes are levied specifically to fund SocSec and Medicare respectively and should be allocated thereto.
Only the excess cost of those so-called "entitlements" above collected payroll taxes which has to come out of other revenues should be considered as a revenue/deficit problem. Counting payroll taxes as general revenue only helps disguise the main source of government overspending - militarism and other corporate handouts..
Much of the medicare deficit is caused, as I mentioned, by the indulgences given the big pharma/health insurance industries. US GDP health cost would be more in line with the comparble GDP cost of other countries for comparable care without those indulgences, and hence be more manageable.
I think everyone is too afraid to raise the biggest, fastest growing problem: MEDICAID.
Social Security is a relatively easy fix--start raising the eligibility age and open up FICA taxes to all income
Medicare is slightly harder--above solution plus means testing for benefits--and finally some limit on publically funded end-of-life benefits (automatic 'no heroic measures' after 100, then 98, then 95,...)
Military--bring all the troops home except for, say, 4 or 5 'Advanced Deployment' bases overseas.
Medicaid--limit it to U.S. citizens who, if newly naturalized, have been 'taxpayers' for at least 5 years. (End the automatic citizenship to US born children of illegals)
With these measures enacted, we would be running a surplus of about $1 trillion per year and can pay down much of the debt.
Everyone wants to pile on the Congressional Fighting theme, but the absolute reality is that there is no down grade without the current and projected debt levels being where they are.
Congressional fighting is not new. These debt levels are relatively new. But even if Congressional fighting is new, it may be necessary for a downgrade, but it is certainly not sufficient.
It's not the economics of the AAA rating that matters and the scary thing is TPTB know this. It is just one more chink in the armor of americanism that the government has allowed to occur because they are all corrupt and could care less about people. These assholes will of course blame each other, George Bush, the Tea Party, too much pork, not enough taxes.....and the band will play on as the Titanic sinks!
BK some good food for thought, thanks as always.
Bruce,
A couple serious questions for you. I moved much of my equity holdings to cash and money market funds in May.
First question; do you see a "debt rally" on monday? I suspect I may want to cover what is left ofmy August shorts.
I still see tha markets (large through small cap stock) trending down until it become clear to all the addicts that the Fed will do more QE in earnest. BUT, second question; how sustainable would this be.
It is almost like the Fed thinks it must destroy the dollar in order to save itself, but may now be realizing that by destroying the dollar, ALL paper will burn and hence the Fed is dead either way.
I appreciate your thoughts on this.
LOP
10 days ago I said that I had moved a bunch to cash. (3 month bills). I am earning "0". But not losing. (and sleeping pretty good)
Let me be clear, I don't see any rallies in front of us. There will be many very choppy days. Some will be up. Others down.
You have to be nimble to make money in these markets, I'm not so nimble. So I'll hold the cash for a bit longer. I think dry powder will come in handy.
Bruce, you say you are earning zero but not losing? Then you subscribe to the notion that the CPI is an honest measure of price increases? Or is it that three months is too short of a time line to worry about losing real worth to inflation? I wonder because in the last three months I have experienced some rather nasty inflation in the grocery isles during a time of year when prices are usually falling, and admittedly that is anecdotal. Did you mean to say that you were not losing nominal wealth?
Did really enjoy the piece though.