Can we avoid a double dip recession?

[SixNein]

The economist has a good article on this topic:

http://www.economist.com/node/21525405

As I was saying https://www.physicsforums.com/showpost.php?p=3423219&postcount=1", there was damage being done by the debt debate. On one hand, a political party is now willing to take our economic future hostage for political gains. On the other hand, there is no willingness to spend in the short term and do long term planning on debt, and uncertainty remains over the actions of the supper committee on everything from taxes to spending cuts. And the national agenda has been changed from recovery to debt even though our growth is extremely weak.

so are we going to avoid a double dip recession? I'm not sure, the economy was so fragile with Europe markets already in distress, and the new uncertainties in America may be enough to push the economy right off the cliff.

On the bright side, the Fed might be able to take some limited actions.

 

[SixNein]

Perhaps people need directions:

Democrats' Position -----------------------> Reality <------------------------ Republicans' position

 

[Ivan Seeking]

I think this has far more to do with Europe and Japan than it does the debt crisis.

Our debt has nothing to do with the immediate problems. The "crisis" was the debt ceiling issue, which was artificial and facilitated by the tea party. But it is significant in that it limits our ability to respond to a severe recession.

From what I understand, the chances of a double-dip are no worse than 50/50, so I'll assume the glass is half full unless and until convinced otherwise.

 

[gravenewworld]

Italy gets into big trouble and defaults, the Eurozone collapses economically, and the US economy tanks along with it while the EU falls apart. Riots over food and the restless unemployed spread everywhere across the globe. Anger at the West increases over what are perceived economic abuses that pushed the world into a terrible recession leading to war. Dire times indeed.

 

[Ivan Seeking]

Italy gets into big trouble and defaults, the Eurozone collapses economically, and the US economy tanks along with it while the EU falls apart. Riots over food and the restless unemployed spread everywhere across the globe. Anger at the West increases over what are perceived economic abuses that pushed the world into a terrible recession leading to war. Dire times indeed.

You might want to get out and get some sunlight.

 

[SixNein]

I think this has far more to do with Europe and Japan than it does the debt crisis.

Our debt has nothing to do with the immediate problems. The "crisis" was the debt ceiling issue, which was artificial and facilitated by the tea party. But it is significant in that it limits our ability to respond to a severe recession.

From what I understand, the chances of a double-dip are no worse than 50/50, so I'll assume the glass is half full unless and until convinced otherwise.

Europe is playing a significant role, but America is playing a significant role too.

According to the BEA, "Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.3 percent in the second quarter of 2011, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.4 percent."

The debt ceiling debate creates uncertainty and doubt over the possibility of stimulus. And current programs are set to expire at the end of this year, so we will see a shrinkage of GDP next year if nothing is done.
[PLAIN]http://web.epi-data.org/temp727/gdp_debt_ceiling.JPG

In addition, the debate set a new precedent on holding the debt limit hostage. Republicans are calling it a template to be used in the future. So we may be about to repeat this **** over and over again.

The uncertainty over the debt limit debate is not over because of this super-committee; instead, the uncertainty remains over spending cuts and tax increases. Will the cuts be up front or on down the road, and where will these cuts be made? What will taxes be on and how much? Members could also fail to agree and the triggers kick in.

The result of the debt limit debate was disappointing to say the least. There was no long term objectives to control the debt, and there was no short term spending to stimulate the economy. The only real accomplishment was sending a message to the international community that our political system is now dysfunctional and injecting loads of uncertainty into a already fragile market.

All of this hurts confidence that America is on the road to recovery. Can America even take care of its long term debt problem? Can it do stimulus right now for the economy? The answer to both appears to be no.

Europe is also going through similar problems in the sense of failed political leadership that puts way to much uncertainty into the market.

 

[Ivan Seeking]

Europe is playing a significant role, but America is playing a significant role too.

According to the BEA, "Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.3 percent in the second quarter of 2011, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.4 percent."

No doubt, the latest report and the revised report from the first quarter were terrible news.

The debt ceiling debate creates uncertainty and doubt over the possibility of stimulus. And current programs are set to expire at the end of this year, so we will see a shrinkage of GDP next year if nothing is done.
[PLAIN]http://web.epi-data.org/temp727/gdp_debt_ceiling.JPG[/quote]

Yes, we were hoping to be farther along by now. But I basically agreed with you. The debt limits our ability to message the economy.

In addition, the debate set a new precedent on holding the debt limit hostage. Republicans are calling it a template to be used in the future. So we may be about to repeat this **** over and over again.

As with the filabuster.

The uncertainty over the debt limit debate is not over because of this super-committee; instead, the uncertainty remains over spending cuts and tax increases. Will the cuts be up front or on down the road, and where will these cuts be made? What will taxes be on and how much? Members could also fail to agree and the triggers kick in.

The result of the debt limit debate was disappointing to say the least. There was no long term objectives to control the debt, and there was no short term spending to stimulate the economy. The only real accomplishment was sending a message to the international community that our political system is now dysfunctional and injecting loads of uncertainty into a already fragile market.

All of this hurts confidence that America is on the road to recovery. Can America even take care of its long term debt problem? Can it do stimulus right now for the economy? The answer to both appears to be no.

Europe is also going through similar problems in the sense of failed political leadership that puts way to much uncertainty into the market.

This is what breaks my heart about what transpired. Obama and Boehner could have cut a deal, and they nearly did! I think very highly of both men and firmly believe they are both dedicated and capable [not so sure about Boehner's qualifications, but I think he's a good man who want's to do what's best for the country]. But the tea partiers just had to go bonkers and wrench the gears. They may have killed our best chance to manage this.

 

[SixNein]

This is what breaks my heart about what has transpired. Obama and Boehner could have cut a deal. The tea party may have killed our best chance to manage this.

What breaks my heart was this performance was done while our economy was so fragile. The economy has been showing negative signs for a while now, and politicians jump up and decide to threaten our obligations, and they dragged it out to the very last second. And they are now saying it was a great idea, and they are going to do it again.

They are suppose to be inspiring confidence right now.

 

[russ_watters]

Our debt has nothing to do with the immediate problems.

:blink: Do neither of you believe that a high and yet rapidly growing debt puts any kind of drag on the economy?

What is your threshold debt level that you believe would be an "immediate problem" and what is your time horizon for when we should start caring about the debt?

 

[Lapidus]

Russ, buy a macroeconomics textbook or just read for starters my post in a thread you started here...https://www.physicsforums.com/showpost.php?p=3437326&postcount=15"

 

[russ_watters]

Neither of those posts answer my question and in any case, we require ACTUAL citations in this forum.

If you can always spend your way out of debt, why doesn't Greece do it?

 

[Lapidus]

Neither of those posts answer my question and in any case, we require ACTUAL citations in this forum.

If you can always spend your way out of debt, why doesn't Greece do it?

If you have read my post I mentioned that one key element when dealing with deficits are the interests rates. What do you conclude?

And again, when the governments spends in a recession it smoothens the downturn and might again increase the GDP and by that keeps the debt/ GDP ratio stable.

Have you guys ever thought about how severe the down-spiraling of the economy would be without the government and the automatic stabilizer that it provides?

 

[WhoWee]

I think this has far more to do with Europe and Japan than it does the debt crisis.

Our debt has nothing to do with the immediate problems. The "crisis" was the debt ceiling issue, which was artificial and facilitated by the tea party. But it is significant in that it limits our ability to respond to a severe recession.

From what I understand, the chances of a double-dip are no worse than 50/50, so I'll assume the glass is half full unless and until convinced otherwise.

Tea Party discussion aside - I was in your camp with the 50/50 until the world wide market drop yesterday COUPLED with a slight dip in gold and (most important) a drop in oil prices. The oil price drop signals a drop in consumption is expected which means a further slow down in the economy. I'm not discounting any of the other leading indicators (could improve in September as unemployment adjusted down to 9.1%) - just focusing on the oil price for now.

 

[WhoWee]

Have you guys ever thought about how severe the down-spiraling of the economy would be without the government and the automatic stabilizer that it provides?

Every new business venture my known associates have started or participated in over the past 24 months have been connected guided or controlled by the Government is some manner - whether insurance/finance, construction, manufacturing, medical, or housing. All of them regret their decisions for a variety of reasons.

The insurance (Medicare) regulations are reaching the point of ridiculous, the (green) construction costs more, is less profitable and slow, manufacturing in Empowerment Zones has unique challenges, HIPPA and healthcare reform (planning and implementation) is a nightmare, and HUD is something that allows you to make a stable income - but you feel like part of the problem. Please label the entire post - IMO.

 

[WhoWee]

If you have read my post I mentioned that one key element when dealing with deficits are the interests rates. What do you conclude?

And again, when the governments spends in a recession it smoothens the downturn and might again increase the GDP and by that keeps the debt/ GDP ratio stable.

Have you guys ever thought about how severe the down-spiraling of the economy would be without the government and the automatic stabilizer that it provides?

The interest rates are currently (artificially) forced to near 0% and growth projections exceed the current actual - yet the debt trajectory is over $20Trillion with Congressional and Presidential approval. To your point - what will happen to the debt trajectory when the interest rates return to normal levels - $28Trillion(?) - what's your estimate?

 

[russ_watters]

The economist has a good article on this topic:

http://www.economist.com/node/21525405

As I was saying https://www.physicsforums.com/showpost.php?p=3423219&postcount=1", there was damage being done by the debt debate. On one hand, a political party is now willing to take our economic future hostage for political gains. On the other hand, there is no willingness to spend in the short term and do long term planning on debt, and uncertainty remains over the actions of the supper committee on everything from taxes to spending cuts. And the national agenda has been changed from recovery to debt even though our growth is extremely weak.

I mostly agree with the main economic points of the article, but disagree with a political one:

If that happens, then America’s politicians will bear much of the blame (see article). Their prescription for a weak economy is a large slug of austerity. Thanks to the expiry of a payroll-tax credit and extended jobless benefits in December, the United States is on course for a fiscal contraction of some 2% of GDP next year, the biggest of any large economy—and enough to drag a weak economy into recession.

The debt deal, which implies only modest new spending cuts in the short term, is not directly responsible for this.

I agree that continuing the payroll tax credit and extending jobless benefits would be good - and I agree that that has little to do with the debt ceiling debate. But I think the writer is being naive: these things, particularly the jobless benefits are likely to be extended when we get there.

There was a deal to be had: keep up spending in the short term, with a stress on much-needed infrastructure investment, as well as extending the temporary tax cuts, in exchange for a big medium-term reduction in the deficit, centred on entitlements and tax reform. Congress did precisely the opposite, failing to support the economy now and failing to find enough cuts over the next decade to stabilise America’s debt.

I agree that spending shouldn't be cut much in the short term, but only in the very short term: a year, certainly no more than two. And I don't know what they mean by "medium-term", but I think after about two years, we need some real and substantial spending cuts. And I also wholeheartedly agree that entitlements are the biggest spending problem. "Tax reform" is vague and I support a form of tax reform (simplification, elimination of a lot of deductions) after about 2 years -- heck, some even now! - but I suspect my vision differs from theirs.

Any hard decisions have been given to a commission—a cop-out that condemns workers and firms to more crippling uncertainty about how the country’s fiscal mess will be tackled.

Agreed.

Would you build a factory today if you knew that taxes had to rise eventually, but had no idea which ones? [snip-back to the top]
The country’s leaders at last ended a ludicrously irresponsible bout of fiscal brinkmanship, removing the threat of global financial Armageddon by agreeing to raise the federal debt ceiling. Yet far from heaving a sigh of relief, investors are nervous. Stockmarkets around the world have tumbled (see article).

I agree that uncertainty is a problem for investment, but I think the author is missing an obvious reality: The debt ceiling debate didn't create the uncertainty! ...which is why the end of the debt ceiling debate didn't end the uncertainty. Sure, we got a new debt commission, but we had one last year too! The debt is rising and it needs to be dealt with sometime soon, otherwise we're headed for total collapse - Greece style. IMO, that is the type of uncertainty a businessman is looking at when trying to decide whether to build a new building (with a payback of 10 years or more on the investment jumping to 20 if the economy remains in the tank?) or even replace a dying piece of equipment (why bother if the economy is just going to collapse in 5 years and you're just going to pawn it anyway?).

So I consider it a positive thing that Republicans made people consider the elephant in the room (pun intended), while at the same time am worried that backslapping over reaching an agreement will take the place of going back later and actually making the necessary changes.

 

[ParticleGrl]

:blink: Do neither of you believe that a high and yet rapidly growing debt puts any kind of drag on the economy?

There is, in fact, an easy quantitative way to get a feel for this drag- look at bond rates. The US real rates on treasuries are negative for everything less than 10 years, and for a brief period yesterday the NOMINAL rate on 30 days was negative. What this means is that the borrowing is not creating the sort of drag you are suggesting right now.

Thats why this idea of "uncertainty" is infuriating- the ONLY thing the market is certain in right now is the safety of government debt. They are lending money at a nominal loss!

Now, if we were Greece, and our rates were rising (instead of steadily declining, as ours are), we might have to worry about something. But Greece is tied into the eurozone, so they are limited all the way around in their responses to crisis.

 

[russ_watters]

There is, in fact, an easy quantitative way to get a feel for this drag- look at bond rates.

The US real rates on treasuries are negative for everything less than 10 years, and for a brief period yesterday the NOMINAL rate on 30 days was negative. What this means is that the borrowing is not creating the sort of drag you are suggesting right now.

That implies we're paying no interest on the debt - is that what you are trying to say? It isn't true: this year, interest on the debt will be about half a trillion dollars. That's 3.5% of GDP. In other words, a stagnant economy paying 3.5% of GDP in interest could instead be expanding at 3.5% annually - a perfectly healthy rate - if the debt wasn't there.

http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

And we're currently planning on doubling the weight of this anchor over the next decade.

Thats why this idea of "uncertainty" is infuriating- the ONLY thing the market is certain in right now is the safety of government debt. They are lending money at a nominal loss!

Confidence is a relative thing. For something that is 100% iron-clad, assured, a tiny, eyelash weight of shakiness is a big deal.

And it isn't like people are buying at low interest because of confidence (implying they would be buying at higher interest if they were less confident) - bond rates are affected by interest rates.

 

[WhoWee]

There is, in fact, an easy quantitative way to get a feel for this drag- look at bond rates. The US real rates on treasuries are negative for everything less than 10 years, and for a brief period yesterday the NOMINAL rate on 30 days was negative. What this means is that the borrowing is not creating the sort of drag you are suggesting right now.

Thats why this idea of "uncertainty" is infuriating- the ONLY thing the market is certain in right now is the safety of government debt. They are lending money at a nominal loss!

Now, if we were Greece, and our rates were rising (instead of steadily declining, as ours are), we might have to worry about something. But Greece is tied into the eurozone, so they are limited all the way around in their responses to crisis.

PG - there is a great deal of uncertainty in the market - we had a worldwide stock drop of 3%(?) yesterday and the DJI is bouncing like a ball today.
http://www.google.com/finance?client=ob&q=INDEXDJX:DJI#.

Please consider - do you think Treasuries would be in the same position today without QE-2 and downward pressure on interest rates - credit downgrade possibility aside - interest rates will rise at some point. Accordingly, there is uncertainty regarding inflation.

Additionally, the Government held Treasuries (Social Security and Fed) will need to be re-evaluated - won't they? I don't think they'll risk printing more money to replace them - do you?
http://www.cnsnews.com/news/article/fed-eclipses-china-top-owner-us-debt

 

[ParticleGrl]

That implies we're paying no interest on the debt - is that what you are trying to say?

No, that's not what I'm saying. I'm suggesting that the rates for short-term CURRENTLY ISSUED debt will be negative in real terms (and sometimes nominal terms). Despite issuing new debt, the interest we are paying on the national debt hasn't been climbing that rapidly- compare the debt service projected for this year to 2007. Our debt increased by 50%, the amount we are paying in debt service WENT DOWN.

And it isn't like people are buying at low interest because of confidence (implying they would be buying at higher interest if they were less confident) - bond rates are affected by interest rates.

If people are not confident the US will pay treasuries, they will demand higher rates, that's how markets work. The rates are controlled by the marginal bond purchaser.

 

[ParticleGrl]

PG - there is a great deal of uncertainty in the market - we had a worldwide stock drop of 3%(?) yesterday and the DJI is bouncing like a ball today.

Thats my point- the market is uncertain about the equity markets, but QUITE CERTAIN about US government debt- so much so that they'll give the money to the government at a negative nominal rate rather then invest in index funds in the short term.

Please consider - do you think Treasuries would be in the same position today without QE-2 and downward pressure on interest rates - credit downgrade possibility aside - interest rates will rise at some point. Accordingly, there is uncertainty regarding inflation.

QE2 ended in June, treasury rates are still low. If there was 'uncertainty regarding inflation' interest rates on dollar denominated assets (like treasuries) would be high. Instead, they are very low. If you take markets seriously, you have to conclude that the worries over the weak economy and the high unemployment are MUCH more serious than any worries over the deficit. The government is wasting time on the wrong problems.

 

[mheslep]

Couple points on various posts above:
-Yes the interest on new debt is low at the moment with the low rates. The point however is this: all $15T of today's debt must be rolled over in the future, very likely at higher rates. So that come higher rates (and they must come), the interest on the future rollover of today's debt will rise and probably explosively so.
-The flight of money (once again) into cheap treasuries cuts off lending to small business http://www.moneynews.com/StreetTalk/Greenspan-Treasury-Crowding-Out/2010/12/03/id/378841?s=al&promo_code=B3B7-1"

 

[ParticleGrl]

The flight of money (once again) into cheap treasuries cuts off lending to small business just as it did in 2009-10.

As I've explained previously, this is nonsense. Crowding out is an interest rate effect- excessive government borrowing raises rates, and it becomes more profitable to invest in treasuries then to invest in capital.

WITH RATES LOW, this story doesn't make sense. What are negative yield treasuries crowding out? Any investment with a positive real-return will be prioritized. How do you suggest this crowding out works? Whats the mechanism? Magic?

So that come higher rates (and they must come), the interest on the future rollover of today's debt will rise and probably explosively so

The real rates on everything less than a 10 year is negative (even the nominal rates on 30 days have gone negative for brief periods now). So we are talking about 7 years of expected negative rates, at least 10 of expected low rates. 10 years is enough to grow our way out of some debt (increasing GDP, hence lowering debt/gdp) and gives us plenty of time to see if 'obamacare' bends the cost curve for medicare. The point is (once more) unemployment is a problem NOW. The fact that rates MIGHT go up in the next 10 years is, maybe, a problem THEN.

 

[mheslep]

As I've explained previously, this is nonsense. Crowding out is an interest rate effect- excessive government borrowing raises rates, and it becomes more profitable to invest in treasuries then to invest in capital.

WITH RATES LOW, this story doesn't make sense. What are negative yield treasuries crowding out? Any investment with a positive real-return will be prioritized. How do you suggest this crowding out works? Whats the mechanism? Magic?

As I explained to before, with references, not everyone gets the same interest rates. Small business access to money is restricted, they do not have access to those rates, they are not sitting on billions of idle cash like an Apple, they can not float AAA paper, they can't borrow at prime+1, and saying 'low' again and again does not make it so. The banks have their money safely in treasuries, in which they can make a profit because they can get money at the Fed window or interbank not for treasury rates, but for nearly nothing at all. Compliance by banks with the recent and poorly understood Dodd-Frank regulation makes private lending just that much more cumbersome (=expensive), and therefore treasury investment just that much more relatively safe, all of which adds to crowding out.

The real rates on everything less than a 10 year is negative (even the nominal rates on 30 days have gone negative for brief periods now).

Treasury's main note used to be the 30 year. Now its mostly http://www.zerohedge.com/sites/default/files/images/user5/imageroot/draghi/UST%20Maturity%20by%20Bucket.jpg"

...10 years is enough to grow our way out of some debt (increasing GDP, hence lowering debt/gdp)

Not if that is done by running a large deficit as you propose for stimulus.

and gives us plenty of time to see if 'obamacare' bends the cost curve for medicare.

which the Medicare actuary says it will not.

The point is (once more) unemployment is a problem NOW. The fact that rates MIGHT go up in the next 10 years is, maybe, a problem THEN.

Look, what are you are proposing is exactly the Bear Sterns plan: run up colossal amounts of relatively short term debt while money is cheap and figure out something later. Its beyond reckless.

 

[jbunniii]

S&P has just downgraded US debt for the first time in history:

http://online.wsj.com/article/SB10001424053111903366504576490841235575386.html

 

[ParticleGrl]

As I explained to before, with references, not everyone gets the same interest rates. Small business access to money is restricted, they do not have access to those rates

This has literally nothing to do with treasuries. If the government issued no treasuries whatsoever, this would STILL be the case. If small businesses are getting high rates (and hence not borrowing) its not because of crowding out, its because of credit risk.

The banks have their money safely in treasuries, in which they can make a profit because they can get money at the Fed window or interbank not for treasury rates, but for nearly nothing at all.

Banks can pretty much ALWAYS make a profit on treasuries, the spread between interbank/LIBOR and treasuries is always positive. Banks aren't investing in small businesses because they are worried they won't get repaid, it isn't crowding out! That credit risk exists regardless of how many treasuries are issued.

Banks are worried about the small business credit risk because of a weak economy, they aren't thinking that treasuries are a great investment. Please read an actual macro econ textbook! Really think about what you are saying- low treasury rates and low interbank rates lead to higher small business rates? If the government issued less treasuries, which way would treasury rates go?

Look- you read markets by looking at prices, rates, etc. You can't just make stuff up without referencing the actual numbers. Can you tell a crowding out story that makes sense if small businesses have higher rates than treasuries? Treasuries are objectively a terrible investment right now- other than 'fear over the weak economy' why wouldn't any rational actor put their money in LITERALLY ANYTHING else?

S&P has just downgraded US debt for the first time in history

I predict that other than (maybe) some temporary shocks, this won't change rates much at all. We can come back in a few months time and see if I'm right. But it seems to me that structurally, what can play the role of US treasuries in the world economy?

 

[SixNein]

S&P has just downgraded US debt for the first time in history:

http://online.wsj.com/article/SB10001424053111903366504576490841235575386.html

It also blamed the weakened "effectiveness, stability, and predictability" of U.S. policy making and political institutions at a time when challenges are mounting.

And this quote makes my point about the damage being done by politicians right now.

 

[mege]

And this quote makes my point about the damage being done by politicians right now.

Yea, it's unfortunate that there is an entire uncertain market regarding the healthcare industry starting in a year. When our healthcare spending balloons in a few years, what industrys are going to give way? I certainly don't want to invest outside healthcare right now.

And if the government was 'predictable', the debt ceiling increase would have just been another administrative effort silently passed in the night and kicked on to the next congress.

It's also important to note, in relation to ParticleGrl's comments, that S&P specifically wants to see deficit reduction:

The downgrade from S&P has been brewing for months. S&P's sovereign debt team, lead by company veteran David T. Beers, had grown increasingly skeptical that Washington policy makers would make significant progress in reducing the deficit, given the tortured talks over raising the debt ceiling. In recent warnings, the company said Washington should strive to reduce the deficit by $4 trillion over 10 years, suggesting anything less would be insufficient.

Is S&P looking at the market in a bit of a vacuum to want that? Or is one of the major financial companies in the world making a mistake in requesting that reduction?

 

[ParticleGrl]

Is S&P looking at the market in a bit of a vacuum to want that? Or is one of the major financial companies in the world making a mistake in requesting that reduction?

Read the S&P statement instead of the wall street journal filter. They make it pretty clear the downgrade was mostly about political brinksmanship, and not any near-term financial crisis.

 

[WhoWee]

Read the S&P statement instead of the wall street journal filter. They make it pretty clear the downgrade was mostly about political brinksmanship, and not any near-term financial crisis.

I guess we'll we'll need to ignore Barney Frank's disclosure that a downgrade has been anticipated long enough for them to include measures in Dodd-Frank to minimize the effect - in order to accept the "political brinksmanship" argument?

 

[ParticleGrl]

I guess we'll we'll need to ignore Barney Frank's disclosure that a downgrade has been anticipated long enough for them to include measures in Dodd-Frank to minimize the effect - in order to accept the "political brinksmanship" argument?

I'm just suggesting we take S&P at their word. Why would they lie in their report?

Also, I can't find whatever "disclosure" you are referencing, do you have a link?

 

[WhoWee]

Read the S&P statement instead of the wall street journal filter. They make it pretty clear the downgrade was mostly about political brinksmanship, and not any near-term financial crisis.

This account by AP is quite clear - Congress AND the Administration will be held accountable moving forward. my bold

http://finance.yahoo.com/news/SampP-downgrades-US-credit-apf-2107320979.html

"S&P said that in addition to the downgrade, it is issuing a negative outlook, meaning that there was a chance it will lower the rating further within the next two years. It said such a downgrade, to AA, would occur if the agency sees smaller reductions in spending than Congress and the administration have agreed to make, higher interest rates or new fiscal pressures during this period.

In its statement, S&P said that it had changed its view "of the difficulties of bridging the gulf between the political parties" over a credible deficit reduction plan.

S&P said it was now "pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics anytime soon."

One analyst suggested the downgrade might move Congress to take concrete steps to fix the nation's budget problems"

 

[WhoWee]

I'm just suggesting we take S&P at their word. Why would they lie in their report?

Also, I can't find whatever "disclosure" you are referencing, do you have a link?

Yes - I posted an interview with Cavuto from a few days ago in another thread - will look for it.

PG - make sure you listen to the entire interview - not just the first minute.
http://video.foxnews.com/v/1087633549001/credit-rating-downgrade-a-done-deal

 

[mege]

From a purely sophist point of view - I think this type of issue is why the US should minimize its debt.

We're now allowing an outside company to be dictating US fiscal policy, basically for a carrot. No matter what back-room deals you may believe happen between the different factions of our government and corporations, this blatant policy steering can only cause other organizations to become more bold in their 'demands' of the government IMO.

 

[SixNein]

Is S&P looking at the market in a bit of a vacuum to want that? Or is one of the major financial companies in the world making a mistake in requesting that reduction?

The long term debt problem has two sides: Economic Growth and Spending Cuts.

If we can get some good economic growth started, we will need less spending cuts in order to balance our budget and get our debt under control. With good economic growth, a great deal of pressure is removed from safety net programs and tax revenue goes up. We also need spending cuts in military and Medicare along with an expiration of the bush tax cuts. But we have to be careful of cutting too much too soon because a reduction in government spending will cause our GDP to contract.

The problem is we are politically unable to take care of any of these issues. Republicans do not want to cut military spending or allow the bush tax cuts to expire. The democrats don't want to cut entitlement spending on Medicare and Medicaid. In addition, the strategy for debts must include a road to economic recovery. If we only try to cut our way out of this mess, we'll cause very sharp contractions in our economy. So we need a formula of front end infrastructure spending with back end cuts including changes to mandatory spending laws.

S&P has lowered our rating mostly because of a legitimate concern about our political stability and predictability.

So our largest problem right now is not debt or even the economy; instead, it is our political system. The government by hostage strategy pretty much defeats the purpose of checks and balances, and it creates a great deal of uncertainty.