Budget Deficit

New Deficit Strategy: Flaming the Messenger

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"Poor-mouthing"?

To follow up on Peter Suderman's great post from yesterday about the predictive unreliability of interest rates (and the bubble mentality inflated by those who cling to low interest rates as proof that there's no real borrowing problem), here's a selection of commentators who reacted to this week's Standard & Poor's downgrade by flaming the messenger:

William Greider, The Nation:

Standard & Poor's, the self-righteous credit-rating agency, has a damn lot of nerve. It provoked scary headlines by solemnly threatening to "short" America. That is, downgrade the credit-worthiness of US Treasury bonds unless Congress and the president oblige creditors by punishing the citizenry with severe budget cuts. What a load of crap.

The headline I would like to see is this: "S&P Execs Face Major Fraud Investigation, Take the Fifth Before Federal Grand Jury." […]

What's required is a serious law that either changes the status of the rating agencies or shuts them down. Otherwise, the temptations for more deception and false assurances will be too strong to resist.

The deficit panic is itself bogus–poor-mouthing America to avoid raising taxes on the folks who got the money.

Suspiciously clothed

Yves Smith, Naked Capitalism, in the New York Times:

The United States is simply not at risk of default. Default is impossible for a sovereign currency issuer.

The Standard & Poor's rating firm should be embarrassed. If there is any political judgment at work here, it is S.&P. falling for politically motivated scare mongering. But given its track record with mortgage securities and collateralized debt obligations, why should we be surprised to see a rating agency relying on conventional wisdom rather than analysis?

Does anybody else remember that David Bowie cover shot where he tried to look like Michael Jackson from "Off the Wall," but succeeded mostly in looking very creepy and disoriented? Anyway….

R.J. Eskow, Huffington Post:

Conveniently, [the] announcement put enormous pressure on reluctant politicians to accept a deal—any deal—that would reduce the deficit. And that's exactly what the anti-New Deal crowd's been pushing. […]

S&P was wrong about Enron. It was wrong about AIG. It was wrong about all those securities it rated AAA, and which were later downgraded to junk bond status. But then, when your corporate bottom line depends on being wrong, you're probably going to be wrong a lot.

The right question isn't "why did S&P downgrade the US government?" It's "why does anybody still listen to S&P?"

Stephen Reader, WNYC.org:

Because [ratings agencies] aren't a part of the government, it's harder for government to hold them accountable. "It's like freedom of the press," says [New York University Economist] Dr. [Richard] Sylla. "[They say] they're only offering an opinion, not a guarantee—so they don't guarantee that they're always right, but they have the right of free speech to express their opinion."

The excuse is unsatisfactory, but as long as the federal government relies on these private companies to do regulatory legwork instead of conducting its own ratings, perhaps our frustration could be better directed at Washington.

L. Randall Wray, University of Missouri-Kansas City economics professor, in the New York Times:

Yes, the raters who blessed virtually every toxic waste subprime security they saw with AAA ratings now see problems with sovereign government debt.

The best thing to do is to ignore the raters

About like this, I'd expect

James Fallows, The Atlantic:

What I'd really like to know is who S&P likes in the Hornets-Lakers series, or this season of American Idol. Their views would carry just as much weight. Also I'd like to know why the news ecology treated this as such a big deal.

Now, there are plenty of perfectly good reasons to question and mock S&P, including some at the links above (and this one, too). Context is a very good thing. But as these responses also make clear, there is a not-insignificant mindset out there that there is no problem, certainly not anything that couldn't be fixed by jacking up taxes (even though that wouldn't come close to making our red eyes black).

It may be true that the see-no-evil types are, broadly speaking, now on the sidelines of the current debate. But there is a reason why President Barack Obama is going around California talking up Pell Grants, clean energy, "investments in basic research," transportation, and protecting the safety net: He thinks that that kind of "balanced approach" (i.e., one that is fundamentally unconcerned about the growth in government spending) is what will get his voters back to the polls next year. Which might be the best defense of S&P's conclusions you'll read all week.

NEXT: The Jubjub Hole

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  1. by punishing the citizenry with severe budget cuts

    And being stolen from isn’t a punishment? Oh, that’s right… only layabouts and government employees are citizens.

    1. And being stolen from isn’t a punishment?

      Dude..Bra!! He’s not saying steal from you, but from the people who gots the money.

      You don’t have any money, do you?

      The deficit panic is itself bogus?poor-mouthing America to avoid raising taxes on the folks who got the money.

    2. Someone posted the great Simpsons quote a couple days ago –

      Rod: Daddy, what do taxes pay for?

      Ned: Oh, everything! Policemen, trees, sunshine! And lets not forget the folks who just don’t feel like working, God bless ’em!

    3. You read my mind Sf (I am sure it was a disturbing read). My other thought was that these people really do seem to believe that the government magically creates wealth and none of the money government borrows will ever have to be paid back.

      My other favorite line “Default is impossible for a sovereign currency issuer.” She sounds so errudite when she says that. The small fact that monetizing debt is the functional equivilent of defaulting on it escapes her. These people really seem to have a child like understanding of the world.

      1. Arguments that devolve to “who’s the adult” usually annoy me, but recently the childishness of progressive arguments seems manifest. They seem like pampered teens who expect mom and day to provide a car, electronics, and the rest…just because they expect it. No thought of where exactly the money comes from. The parallel here is these adults have no clue how business operates, how tough it is to sustain a business, to make money, create wealth. They wouldn’t last a week as a third shift supervisor in a paper cup factory.

        And look at the tantrums they throw when someone tries to take their goodies away, as in Wisconsin.

        1. I don’t know what else to call them other than children. These people seem incapable of understanding that there is some boundry to the amount of debt a government can carry. That is not advanced financial or economic thinking. That is just common sense.

        2. IMO, a basic understanding of money is part and parcel of being an adult. Thinking the government is like Santa Claus is definitely not part of understanding money.

      2. The United States is simply not at risk of default. Default is impossible for a sovereign currency issuer.

        This ignores the possibility that a government that has looted everything else might, in desperation, turn to looting the people who bought its bond by deciding to not pay them back.

        Default, from the government’s point of view, would make it really hard to get any more loans. That is not the same as it being impossible.

        I don’t own any government bonds, since I think the risk of default is vastly underrated.

        Don’t get me going on the idiocy of the article advocating having the government rate itself instead of having an independent agency — like any investor with a grain of sense would trust such a rating rife with conflict of interest.

        1. I had an argument before with a not-very-bright co-worker of mine on whether or not the government could default. I argued that it was going to default very soon whether he liked it or not, and whether or not anything was done about it.

          His view was that if the government was going to default, they would “send out the gunboats”. I asked him what those gunboats were going to do….perhaps change their guns into magic money-fountains to shower DC with space-cash? He didn’t have an answer.

          1. What he thinks they’ll do is actually fight a “war for oil” and kill as many brown people as needed to keep the resources flowing. Unlike Bush, who insisted that the Iraqis could sell their oil to anyone they pleased.

            Projection, thy name is liberal.

        2. I lived in Brazil in the 1980s. I can tell you all about how this works and what the effects on the nation are.

      3. My other thought was that these people really do seem to believe that the government magically creates wealth and none of the money government borrows will ever have to be paid back.

        The Bernanke wouldn’t lie.

  2. The excuse is unsatisfactory, but as long as the federal government relies on these private companies to do regulatory legwork instead of conducting its own ratings, perhaps our frustration could be better directed at Washington.

    “Who could possibly guard the hen house better than the fox?”

    I feel like there’s a rat in my brain.

    1. That’s the way they want you to feel, because that’s they way they feel all the time.

      It’s good to see the usual groupthink rearing its ugly head once again, though.

    2. Also thought that was a great statement and showed how credible the author was.

    3. If the government rated its own bonds, they’d have to invent a new AAAAAAAAAAA rating to tell everyone how awesome they are.

  3. So, S&P is always wrong in the same direction, but they have no predictive value? Someone needs to teach these people the difference between random and systemic errors. If my clock is 7 minutes fast, but counts seconds correctly, I know what time it is. Same with S&P. If they always overrate everything, we know that US is in trouble when even they won’t bless the debt.

    1. The new FinReg bill holds the ratings agencies liable for their opinion like an auditor has historically been. Previously they had been exempt from liability.

      Of course they are fighting liability and maneuvered a stay on implementation – they are not happy with the Dems and Scott Brown for that bill.

      There is more profit in evading responsibility in full.

      1. No problems, just don’t pay any attention to Obama’s invasion of another African Nation.

      2. Liable for expressing an opinion, huh?

      3. The new FinReg bill holds the ratings agencies liable for their opinion like an auditor has historically been. Previously they had been exempt from liability.

        The new FinReg bill doesn’t do shit.

        1. “FinReg?” I got the chills of Orwell. MiniLove, MiniTruth, etc.

      4. The new FinReg bill holds the ratings agencies liable for their opinion like an auditor has historically been.

        liable in what way?

  4. Yves Smith is correct. A sovereign currency issuer won’t default. They’ll just print more money to pay the debt.

    So if you are a bond holder, what is the effect? If they devalue the dollar 80% to pay you off, are you any better off than if they default and give you 20 cents on the dollar?

    Or are you in fact much worse off, because you are living in an economy dealing with the effects of 500% inflation?

    It isn’t Yves’ fault. Basic finance is only covered in classes that nobody of any intellectual heft takes. Kind of a financial Catch-22.

    1. Wrong. Default/money printing is a political decision.

      There is a political choice to not default, but to print money.

      The problem with this scenario is that when the choice is presented, default is the easiest and least painful option.

      1. If the debt ceiling is not raised the Federal Reserve cannot buy new debt or if it is they could choose not to buy anyway.

        1. Oh, come on, like the Federal Reserve actually lets what the silly law say get in its way if there’s an emergency.

          If that were true, then the Fed would have actually only spent the TARP money in the way the bill authorizing it actually authorized it.

        2. If the debt ceiling is not raised the Federal Reserve cannot buy new debt or if it is they could choose not to buy anyway.

          I get the impression that you think the debt ceiling impacts the federal reserve in some way.

          It doesn’t.

          1. No, shrike is right.

            The Fed has to issue debt in order to form currency. Now, it’s leveraged to all hell and can never be repayed, but it still has to be issued as debt. And you can’t leverage zero no matter how hard you try.

        3. heee heee heee heeee *Ernie laugh*

          You’re the first person I’ve seen that actually has mentioned this inter-relation between the debt ceiling and the Fed being able to create currency.

          This makes the prospect of refusing to raise the debt ceiling oh so interesting.

          What would the feds do if they can’t issue new debt, have to pay creditors first out of the government’s cash flow (and they will), and the Fed can’t print to cover obligations?

          Oh. It will be a wild ride.

      2. Default is the easiest in the very short term, because it does away with 100% of the debt. Printing money only cancels some portion of the debt.

        Default makes it really hard to sell any more debt. Printing money — to a point — allows selling more debt, but with higher interest rates demanded by bondholders. At some point in the descent into Zimbabwe style inflation levels, printing money becomes almost identical to default on the bonds.

        From the perspective of taxpayers who don’t hold those bonds, and who aren’t sucking off the government teat too much, default would be the best outcome because it would end the ability to engage in deficit spending financed by borrowing.

    2. You and Susan, er, Yves Smith deserve each other’s stupidity.

      A downgrade doesn’t mean an increased risk of default for sovereigns, it means in increased risk of dilution of the money (aka creating more fiat money out of thin air). The end result is the same – buying at the current yield is a riskier proposition.

      Fuck Yves Smith and the taxpayer she rode in on.

  5. Sounds like to me someone is pissed because the S&P is fucking with the gravy train.

  6. Does anybody else remember that David Bowie cover shot where he tried to look like Michael Jackson from “Off the Wall,” but succeeded mostly in looking very creepy and disoriented?

    …No. David Live?

    I do remember Bowie looking creepy and disoriented for my entire childhood, but at the time I thought people who made music were all religiously entranced in a way that gave them the barf-sweats or something, because the ones I liked all looked fucked up like that on TV.

    The ’70s ruled.

      1. He called that look =
        “Gay Frankenstien.”

      2. I lost all respect for Bowie the night he came on Saturday Night Live and pretended to be some “just jeans and a tee shirt” kind of punk rocker. This was WELL after punk went mainstream.

      1. Well, it’s “Lodger” in any case.

        1. That’s supposed to be Bowie? I always thought it was a picture of someone that got hit by a bus.

        2. Lodger doesn’t look anything like Off the Wall. Besides, it predates it by several months.

        3. Johnny is a man
          And he’s bigger than you
          But his overheads are high
          And he looks straight through when you ask him how the kids are

  7. “S&P was wrong about Enron. It was wrong about AIG. It was wrong about all those securities it rated AAA, and which were later downgraded to junk bond status.”

    “Yes, the raters who blessed virtually every toxic waste subprime security they saw with AAA ratings now see problems with sovereign government debt.”

    Is it just me, or do these sound like arguments in support of downgrading our AAA status?

    1. I was thinking tangentially to that – “Why aren’t these assholes happy now that S&P is getting more proactive?”

      1. Wrong target. They were supposed to downgrade BP. Because they’d have cried bloody murder if S&P downgraded MBSes in 2007.

    2. Then maybe they shouldn’t be chimping out about S&P downgrading the US, if they’re so damn wrong about everything.

      1. So are these people buying USTs at 4% interest? If they believe it’s a sure thing and the S&P’s rating is a crock, surely they must be long Treasuries.

        Oh, that’s right, liberals never put their money where their mouths are.

  8. I’d be interested to see some of these people really take the opposite side of the argument if they can…

    If deficit spending doesn’t lead to inflation and higher interest rates, then what does? According to them, how do we know when our deficit spending is a problem?

    Is it only after the fact?!

    Are they suggesting that standard treasuries won’t drop in value if the interest rates rises with inflation? Are they suggesting that standard treasuries don’t trade down as interest rates rise?!

    Let’s see any one of them take any of those positions.

    1. you are assuming they will argue logically and in good faith.

      Lots of these people argue that low interest rates show that we can borrow to infinity and beyond.
      The market is not a perfect predictor, nor is the market always in equilibrium, but what the market used to do, was PUNISH foolish investment decisions and return the economy to balance.
      We spent more than we had, but these people don’t want any cutbacks EVER.
      The fact that this general spending beyond our means have put us in present situation never seems to occur to them.

      1. There’s also a lot of international support for our debt.

        There’s a lot of uncertainty everywhere in the world right now too, and there’s some talk about U.S. dollar denominated government debt not being the safe harbor of choice like it used to be, but we’re still benefiting from a lot of that too.

        That can go away. They’d just bid less on our debt is all that happens. It happens in small increments every time there’s a bond auction. The value drops when the world bids less on our debt, and that means interest rates go up…

        Sometimes they bid higher; sometimes they bid lower.

        Why any of these jokers would argue that isn’t the case–or that cranking up the supply of U.S. debt to the world wouldn’t mean the world will likely demand less of it?

        There’s only a few explanations:

        1) Like you said, they’re being disingenuous.

        2) They don’t know anything about what they’re saying.

        3) They think their audience is stupid.

        None of those explanations are mutually exclusive of course.

        1. I fear it is c), and their audience actual is stupid. Or at least very clueless.

    2. “If deficit spending doesn’t lead to inflation and higher interest rates, then what does?”

      Greedy businessmen and greedy bankers (in other words, teh Jews).

      1. I don’t know if you’re being anti-Semitic or you’re trying to smear tax and spend liberals as being anti-Semitic, but either way, your comment is disgraceful.

        Just thought I’d point that out.

        1. I think Gus was being sarcastic — the “teh” is a giveaway — and pointing out how the leftists are looking for scapegoats.

          Perhaps if he had written “TEH JOOZS!!1!1” the point would have been clearer.

          1. Sarcasm is scary on that point.

            I’ve seen people make comments like that for reals.

            After you’ve seen those comments for reals, it’s just not as funny as it used to be.

            I missed the teh. I use it myself, but letters jumble around on me a lot.

  9. The right question isn’t “why did S&P downgrade the US government?” It’s “why does anybody still listen to S&P?”

    Nationally Recognized Statistical Rating Organization

    The kids are only playing the games the grown-ups(SEC) allows them to play.

    1. Hey, asshole – you could have put a NSFW on that link, you know.

  10. “Default is impossible for a sovereign currency issuer.”

    Maybe de jure default is, but defacto is not. Essentially, in the great depression when the US went off the gold standard, that quacked like a default, waddled like a default, and cause misery and hardship like a default.
    But being a currency issuer, everybody in the US was more prosperous and enjoyed far, far hotter sex than they had ever enjoyed before.
    http://www.moneynews.com/Stree…../id/351739

    1. Actually the world went off the gold standard after WWI. France and England had such huge debts from the war they couldn’t maintain the gold standard without defaulting. So they quietly debased their currency and moved away from the gold standard without admitting it. This went a long ways to causing the depression of the 1930s

      1. If you wan’t to look at it from a completely technical stand point, the United States was never really on a 100% gold standard. The federal government could (and did) suspend specie payment, change the ratio of dollars to gold, debase gold coins, and so on. I would argue that we made our first steps towards total abandonment of even the veneer of a gold standard in 1913 when the Federal Reserve Act was passed, allowing banks to issue money-substitutes in excess of the amount of gold they had in their reserves, but now I’m just preaching to the choir.

        France and England had such huge debts from the war they couldn’t maintain the gold standard without defaulting. So they quietly debased their currency and moved away from the gold standard without admitting it

        My economic history of that period is a little muddy, but I believe that this was because during the war both France and Britain, and many other nations, had suspended specie payment and payed for a portion of the war via inflation. This, of course, caused the price of gold to rise far above what it had been prior to the Great War. After the war when both countries wanted to return to the gold standard at the previous gold/pound-sterling and gold/franc ratio, they would have to deflate their money supplies greatly in order to do so. So, naturally, they just set it at the higher gold to currency ratio, allowing the hit in purchasing power to be taken by the citizens.

  11. Screaming Jay Hawkins explains – Whistling Past the Graveyard
    what you think is the sunshine
    is just a twinkle in my eye

    http://www.youtube.com/watch?v=eceUXYtdw8Q

  12. The United States is simply not at risk of default. Default is impossible for a sovereign currency issuer.

    So, Ms. Smarty Pants, what would be technical term for it if the U.S. government refuses to make payments to its bondholders or is unable to without firing up the Treasury printing presses round the clock?

    Sure, the Chinese other debt holders aren’t going to march into Washington DC and repossess the White House, but good luck getting anybody to buy new bond issues, at least at non-usurious rates of return.

    It’s amazing that someone with so tenuous a grasp on basic finance or on recent world history would be a cable business news channel. Or maybe not…

  13. Default isn’t the issue.

    There are lots of bonds that trade below AAA status. I think BBB- is still investment grade.

    Our bonds could trade at less than AAA just like others do. T

    But keep in mind, there’s a whole world of awful things that could happen without a default. I don’t think S&P was really about default–they were talking about our bonds possibly losing their AAA status. …and that would affect their value and our interest rates.

    If the value of government bonds drops, that means the interest rates go up. That means the cost of servicing bond debt goes up. That means a bigger portion of our GNP is going to pay interest on our debt. That means inflation is going up, and the government is spending less on discretionary items…

    We’ve had double-digit interest rates and double-digit inflation in my lifetime. It’s horrible, horrible stuff…

    We didn’t default. Default isn’t the issue. Fiscal conservatives should stop saying it is. We don’t have to become what our critics say we are…a bunch of ninnies worried about default.

    If we keep spending the way we are, our interest rates are probably going way up. That’s gonna make a whole lotta really bad things happen. We want to avoid those bad things.

    Default isn’t the issue.

    1. As a practical matter, the U.S. will “default” when it can no longer secure enough financing to continue government operations above the level of taxes received.

      Bond ratings at this level are really just a fig leaf, the way I see it. I doubt the Chinese and other large-scale holders of U.S. debt are basing their decisions on which grade S&P assigns. An S&P downgrade may have a psychological effect, but ultimately it only reflects a conclusion that decisionmakers have already reached.

      You don’t have to be a genius to see that the fiscal cliff is looming straight ahead.

      1. Before that happens?

        Interest rates will go up to 12% or higher like they were in the ’80s.

        Inflation will go up to double digits.

        When people and businesses have to pay 12% or more in interest on their homes, cars and business loans?

        When inflation goes up into double-digits again?

        There’s no reason to think our politicians or the American people are so stupid that they would keep doing that to push up interest rates into the 20% range–and inflation up even higher?

        What we’re trying to avoid is double digit inflation and interest rates. If we go through that pain, our government will trim itself down. The point is to avoid double-digit inflation so we don’t have to go through that.

        This is like telling a kid to stop scratching a mosquito bite. The reason to stop scratching a mosquito bite is so it won’t get infected.

        It’s not that because if it gets infected, you won’t do anything about the infection, and then you’ll die. It’s not that if you don’t stop scratching the mosquito bite, then you’ll eventually scratch through the skin, your muscle, and eventually scratch through your bones and through the other side.

        The reason these people are saying the things they’re saying? May be to provoke libertarians into making themselves look like a bunch of chicken-littles!

        The sky is not falling. If we keep going the way we’re going, the solution to our problem is going to be extremely painful.

        But we are not going to default on anything. We’ll never get to the point where we can’t finance government operations, but we may get to the point where financing government operations means paying excessively high interest rates on our debt, paying higher taxes and high inflation…

        And we want to avoid that.

        1. I think you give our government too much credit for thinking. 🙂

          The problem I see with your analysis is that government DIDN’T trim itself down in the early ’80s when inflation when to double digits. I don’t see how the political conditions have changed. If anything, they’ve gone the other direction.

          If we suffer a bout of hyper-inflation (I agree with you on this), we are more likely to go the direction that Argentina did, which is a disastrous populist movement that will further destroy our economy. The dependent classes aren’t going to magically go away simply because interest rates rise. We will all suffer so that they can remain on the “government smack”, however degraded it may become.

          1. It’s more complicated than just cutting spending, no doubt.

            We can grow our way out of problems too.

            In a perfect world, we’d slash both tax rates and spending, but given the choice, I’d rather slash tax rates personally.

            Neither slashing tax rates to promote growth nor slashing spending is insane though.

            We’re either promoting investment, hiring, efficiency and productivity with our tax policy or we’re discouraging it. For what happened in the ’80s, I realize that lots of good things can happen even if we don’t cut spending–still, we were able to cut spending in the ’90s.

            It can be done!

            The economy happens in the present tense for a lot of people, and they won’t see the need to sacrifice anything until it’s necessary. If interest rates went up to 12% next year? They’d see things differently.

            It would be a shame if we had to go through that pain to get people to take a look through the windshield and see where we’re headed though.

            It would be interesting to see what some of these same people have to say about global warming. Surely the relationship between spending and inflation and high interest rates is clearer than…

            1. The dependent classes (aid recipients, government workers, government contractors) make up a much larger percentage of the population than they did in 1980. My worry is that these folks’ self-interest is directly the opposite of the productive classes, and they are now numerous enough to thwart needed measures to either cut the government down to size or get the economy back on track.

              1. I think the productive class is big enough.

                Things were a lot less capitalistic back in the ’80s. A smaller chunk of our workforce is unionized now…

                Charitable giving goes up when people are making a lot of money, but if we see double digit inflation again? All that feel good stuff for the starving people will suddenly turn into contempt for the welfare queens.

                Remember, some of Ronald Reagan’s most crucial support came from blue collar union members. If I remember correctly, they turned out bigger for him in ’84 than they did 1980 too.

                Once the economy improved, we had Bush the Greater telling us how conservatism needed to be kinder and gentler. That’s the conservative sales pitch when times are good.

                The sooner we slash spending, the better off we’ll be, but I still think the slashing is gonna come whether Barry O and the Congress likes it or not.

                We have 43 nuclear submarines on active duty, and our biggest enemies live in caves. We’re on the record for ordering 2,443 Joint Strike Fighters. …because. …because?

                Not because we need them, but because we can?

                There are 150,000 people working at the Department of Commerce…doing something. Something that requires more employees than Starbucks needs to serve millions of cups of coffee every day on every third street corner in America.

                When the interest on treasuries goes up to 12% or so? I think a lot of that silliness comes to an end.

                1. When the interest on treasuries goes up to 12% or so? I think a lot of that silliness comes to an end.

                  You’re dreaming.

                  The parasites are much larger than they were in 1980 and getting larger every year as the baby boom starts retiring. It’s possible, barely, that a major technological revolution will happen and so improve productivity that it overwhelms the best efforts of politicians and the parasites to kill the host. That’s essentially what happened in the 90s. Not government getting its act together or any other such fantasy.

              2. You ever see that movie Daybreakers? I’m pretty sure it was intended to be a standard liberal peak oil fearmongering allegory, but there’s definitely a different interpretation.

      2. “As a practical matter, the U.S. will “default” when it can no longer secure enough financing to continue government operations above the level of taxes received.”

        We are past that point already. The Fed now buys the vast majority of all treasury bonds, and private buyers almost none.

    2. Yeah, BBB(S&P), Baa(Moodys) is lowest investment grade.

      However I think some institutions/funds are required never to hold less than A, so that functions as sort of a defacto minimum, depending on who/what you’re talking about.

      1. Yeah, my point was just that it isn’t about default.

        It’s about having to offer a lot more in interest in order to get investors to buy our debt.

  14. The deficit panic is itself bogus?poor-mouthing America to avoid raising taxes on the folks who got the money.

    As for this little nugget of wisdom, I don’t even know where to begin.

    Greider and his ilk are proof that Rand was understating the case when she created the Wesley Mouch character.

  15. Yves Smith sure is a handsome woman.

  16. Sure, the Chinese other debt holders aren’t going to march into Washington DC and repossess the White House, but good luck getting anybody to buy new bond issues, at least at non-usurious rates of return.

    At some point won’t whole charade of bond auctions just disappear? The fed will monetize so the numbers add up and that will be about it.

    1. That is true. And if you think about it, on the one hand these people are arguing that the US can’t default because it can always just print money. But on the other hand they are calling the Republicans “ezvil nihlllists” for not wanting to raise the debt ceiling. If opening up the printing presses is no big deal, then why is raising the debt ceiling so important?

      1. Even weirder, according to their logic, why bother having a debt at all? Just run the printing presses when you need more money, take out the middle man. You can always burn the stuff if inflation gets too nasty.

        1. …..why bother having a debt at all?

          Because it allows a country to maintain the illusion of monetary responsibility. Only those unimportant 3rd world dictatorships….without democracy….no less…would simply print money without any sort of link to real value. Who the fuck do they think we are….Zimbabwe?

    2. No, I’m sure bond auctions will go on, whatever happens.

      At the bottom of it, government bonds are nothing more than the ultimate non-collateralized loan–essentially a giant credit card. The U.S. government couldn’t go on for long if it had to pay interest to bondholders at the same rates that high-risk borrowers do on their credit cards. That’s where we’re headed.

      Pay off the existing bonds with funny money, and getting anyone else to buy in is going to be a challenge, to say the least. That’s the disturbing part in the comments by all these leftist talking heads–they apparently can’t see beyond the next hill.

      1. “Pay off the existing bonds with funny money, and getting anyone else to buy in is going to be a challenge, to say the least. That’s the disturbing part in the comments by all these leftist talking heads–they apparently can’t see beyond the next hill.”

        You are late to the game, this already has happened.

  17. “What I’d really like to know is who S&P likes in the Hornets-Lakers series…” The Lakers in 5, and the US still has a looming debt crisis.

    1. Notice how they pictured the rapist on The Lakers as we are being ass-raped by the gubmint. Visual irony….

  18. Threadjack. But this was from Best of the Web a few days ago. This guy may be the world’s biggest progressive douchebag.

    Worst Decisions Ever
    From ABC News:

    His college roommate, Mark Zuckerberg, asked Joe Green if he wanted to leave Harvard and move to California to start a company called Facebook. Green decided to chase his passion of political grassroots organizing. So, he said “no” and joined the Kerry presidential campaign.

    1. Politics:

      –Show business for ugly people.

      –Private industry for the talentless.

  19. Regarding the David Bowie / Michael Jackson alt-text: Why are there no Michael Jackson sightings?

    1. Because as much as some people liked him, they’re pretty sure its a good thing he’s dead, and hopefully he stays that way.

    2. It would herald the zombie apocalypse?

  20. , the self-righteous credit-rating agency…The deficit panic is itself bogus?poor-mouthing America …

    OK, these are the same jerk-offs who cried foul over the ratings agencies *failing* to be critical enough about MBS or institutions who held lots of them on their balance sheets… ; Now because it’s the public sector they’re cast as being *unecessarily critical*

    The United States is simply not at risk of default. Default is impossible for a sovereign currency issuer.

    I had no idea. I’m telling the Greeks!…. yeah, ‘impossible’, maybe – doesnt’ mean that people holding your notes aint gonna dump that shit faster than than a fickle summer-camp girlfriend. This rhetorical game of arguing against a point *not being made* has become the strategy du jour for liberals arguing about debt… “default not possible!” – yeah, but as many others have pointed out, the cost of borrowing can skyrocket to the point where we can no longer sustain the financing costs… whats the material result either way? Fiscal implosion. A rose by any other name still sucks major ass.

    I’m sort of suprised so many went out of their way to mention that ratings agencies had whiffed the Housing bubble, so, “maybe they shouldn’t be trusted”…

    Considering the thing they whiffed on, thats got to be one of the dumbest things I’ve ever heard. It’s one thing to accuse people of crying wolf; its another to do so just after most people’s flocks have been slaughtered en masse, and you can hear the howling in the distance… “you’re just being *negative*!”

    I don’t get how they seem to be able to tune out the broader economic realities, the fact that in the past few years the government had to bail out many of the largest entities in the country & still owns some of them, massive consumer wealth has been destroyed, and we seem to be facing long term unemployment in the double digits… yet, things are *all just groovy*, and people who say otherwise are just potty-poor-mouths.

    I have a hard time believing most of these people sincerely believe it themselves.

    1. They live in the same world as these people.

      1. The Greeks gave up being a sovereign currency issuer when they switched to the euro.

        Try again.

  21. All those commentators who blast S&P’s track record, well…I would say their cumulative track records on ‘calling’ the future of asset prices – in any category – to be equally silly. The one thing my crystal ball says that’s right is everyone else’s crystal ball is broken.

    Of course let’s hear from a guy who DID call the death-spiral of MBS assets. And the exploding deficit. And the dollar index doing 69 – and not in a good way. That would be a fellow like Peter Schiff. What’s he think of US financ…oh wait.

    1. Let’s hear from the man himself what he’s got to say about S&P antics:

      http://www.europac.net/commentaries/late_party?once_again

      Europac’s the shit.

  22. At some point won’t whole charade of bond auctions just disappear? The fed will monetize so the numbers add up and that will be about it.

    What do you think they’re doing now? The Fed has monetized at least 80% of the government’s debt over the last year. Who do you think is bidding at these auctions? By proxy, the Fed.

    1. Come on RC next you are going to tell me that gas is $4 a gallon for some reason other than evil hoarders and speculators.

    2. RC no argument…..but the “charade” continues. The primary dealers show up and the carousel spins and the bonds are sold….eventually the fed will be it.

  23. R.J. Eskow, Huffington Post:
    Conveniently, [the] announcement put enormous pressure on reluctant politicians to accept a deal — any deal — that would reduce the deficit. And that’s exactly what the anti-New Deal crowd’s been pushing. […]

    Convenient timing? The S&P report came out just AFTER the budget-brouhaha-that-wasn’t.

  24. “The United States is simply not at risk of default. Default is impossible for a sovereign currency issuer.”

    Is she stupid or disingenuous….
    No one at S&P said the US was defaulting, they said the risk of default was maybe increasing. And if she still has a problem with that bc OMG SOVEREIGN, then fuck her. There are different credit risks for different sovereign nations. In the fucked mind of Yves Smith, Zimbabwe, Greece, and the United States all have the same credit risk because they are all sovereign?!

    RAGE RAGE RAGE

    seriously, at the end of the bush administration I was almost tempted to think the donkey was less evil and deceptive than the elephant….but after the last two years its become pretty evident that I just needed to give the donkey time. obviously, the donkey hadn’t had need for its apologists to come out and explain away reality yet.

    jesus fucking christ. reason, you earned the KOCHTOPUS!!11!!1! money today. i am raging.

    1. Is she stupid or disingenuous….

      The latter. Ms. Yves Smith simply did the equivalent of shouting “squirrel!” to the media dogs.

      Oh, and even though you might know the meaning of the words individually, you really don’t know what the phrase “sovereign currency issuer” means, do you?

  25. Paul Krugman shaved and now calls himself Yves Smith?

  26. “The headline I would like to see is this: “S&P Execs Face Major Fraud Investigation, Take the Fifth Before Federal Grand Jury.” […]”

    You want the government to make political prisoners of people who tell inconvenient truths which make stealing harder for you? What a little fascist cunt. Can’t wait for the headline informing us that Dear Leader purged your ass for counterrevolutionary behavior, you piece of shit.

  27. Default is impossible for a sovereign currency issuer.

    What is Yves Smith’s opinion on S&P’s rating of Greece’s debt? Portugal’s? Ireland’s?

    Or maybe she’s just a muppet – pan down and you’ll find Trichet’s arm.

    1. None of the three are sovereign currency issuers – they issue their debt denominated in euros instead of drachma, escudo, or punt, respectively.

      Try again.

      You may know what the words in the phrase mean individually but you really don’t understand the phrase “sovereign currency issuer” means in bond market parlance, do you?

  28. i hate to break it to her but
    Yves is a man’s name.

  29. i hate to break it to her but
    Yves is a man’s name.

    1. GR8 — LOL — but she prob had ‘enlightened’, ‘progressive’ parents who think stuff is ‘cool’, that actually turns out to be totally wrong.

  30. Pretty good post. I just stumbled upon your blog and wanted to say that I have really enjoyed reading your blog posts. Any way I’ll be subscribing to your feed and I hope you post again soon.

  31. Tip for Matt Welch: Man, your last paragraph was AWESOME !!!!! My tip is that you should have used a concise sentence in your FIRST paragraph to wrap up your thesis and show the readers how you freaking NAILED the issue, right up front. I’m glad I made it to the end to read that. You could have made it more hard-hitting, like:
    S&P is correct with its worry about future US default — Obama’s more concerned about keeping unsustainable fed spending to please his govt-cheese voters next year. He’d rather destroy the country but get a 2nd term, which by the way brings to mind another major lie of his. The man is dangerous, correctly & duly noted by S%P in so many words!

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