Moody's May Cut US Rating on Tax Package

Discussion in 'Politics' started by sargon20, Dec 13, 2010.

  1. sargon20

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    So now the dominoes will finally begin to fall. Thirty years of tax cuts are the answer to world hunger, immigration, climate change, habitat loss, poverty,immigration, you name it tax cuts are the answer. Of course the true goal is to actually break the government and dismantle everything related to the New Deal. And this is just the tool to make it happen finally after 30 years. The Reagan tax cuts and the Bush tax cuts and the sea of red ink they created are finally coming home.

    Moody's May Cut US Rating on Tax Package


    Moody's warned Monday that it could move a step closer to cutting the U.S. Aaa rating if President Obama's tax and unemployment benefit package becomes law.

     
  2. Speculator

    Speculator New Member

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    So you'd prefer to have a private ratings agency rather than democratically elected politicians dictate domestic fiscal policy?
     
  3. Jason

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    Ah the Greek argument. Why should the three big ratings agencies have the power to bring an economy to its knees?

    Ultimately the argument is pointless. The ratings agencies do have this power, whether or not we think they should have it. And if the USA were to try to legislate against them they would instantly migrate to London or somewhere else.

    The good news is that the three agencies are well-aware of their power and are very reluctant to downgrade a country. It is pretty clear that they over-rated Greece and Ireland, are almost certainly now over-rating Portugal and Spain. During the UK's election they held their fire and didn't give the rating that the UK probably deserved, rather waiting until a new government set out its economic poicy, which reassured them.

    The bad news is that if they are even whispering at a US ratings cut the position must be dire. This is a wake up call to the USA. If it doesn't make the nation's figures add up the ratings agencies will reflect the market worries and downgrade - and the cost of borrowing will go up, making problems even worse. The US government probably has to do what Moodys are suggesting. Politicians can influence markets but they cannot buck them.
     
  4. Speculator

    Speculator New Member

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    Be fair, that's not quite what I said. I'm questioning whether U.S politicians should put the views of a handful of frankly useless ratings agencies ahead of the wishes of their own electorate. If the U.S gives in everytime Moody's raise an eyebrow it renders the democratic process obsolete.

    Yields on U.S Treasuries are at all time lows anyway, despite a recent spike this week. Average yields on ten year bonds are around 3.3%, so even if a downgrade was imminent I expect rates would still only rise to their long term average, maybe a little more or even a little less. It's not the end of the end of the world and anyway, Western economies need to start readjusting to a normal level of interest; until real -not speculative- profits are attainable growth with continue to be schloretic and recovery distant.
     
  5. sargon20

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    Non sequitor. They rate bonds and the ability of them being paid back. It's pretty clear the politicians, certain ones, are fiscally irresponsible and that's reflected in the ratings. Should Equifax, Consumers Union and other consumer agencies affect what banks charge you in interest rates? So what if you're constantly late and your credit cards are maxed out and you want more credit?


    Ignore them if you like. It will effect the cost of borrowing which is already a huge item in the US budget, will go up and up.
     
    #5 sargon20, Dec 13, 2010
    Last edited: Dec 13, 2010
  6. Speculator

    Speculator New Member

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    I think you've missed my point, if the U.S electorate are saying one thing and the ratings agencies another who should the U.S administration listen to? I'm saying the public, you're willing to sacrifice national autonomy and let the agencies decide your fate. They can put whatever stamp they like on your debt, but ultimately the decision is up to the U.S and the U.S alone.



    The cost of borrowing is at a historical low, although the national debt is pretty big. The ratings agencies will follow the market rather than vice versa, really they're just used to cover the backs of pension fund trustees who look to purchase AAA rated bonds to satisy portfolio requirements.
     
  7. sargon20

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    Yes. Just at the consumer level the decision to manage your debt the way you see fit is your decision but do not expect the people who are financing your lifestyle to continue to loan you money at rock bottom rates. At some point it will become obvious you do not have the ability to repay. You cannot be autonomous and at the same time expect investors to buy your bonds and charge you rock bottom interest rates. Something's gotta give.
     
  8. Jason

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    If the children are saying they want to swim in he river but the tour guide says there are crocodiles there who should the parent listen to?

    It is imperative that the US administration listens to the ratings agencies. If they don't the consequencies will be too terrible. A downgrade would put up bond yields, and with the quantity of debt the US is servicing that would be a very big problem. It would also tend to depress the value of the dollar and of US equities. It would cause very major damage, and once done it is hard to get out of the hole. The required tax hikes and spending cuts are bigger after the downgrade than if they were made before.

    The present US administration has a mandate which (certainly following the mid-terms) is not particularly strong. The argument that the US electorate are clearly saying anything is not easy to sustain. Probably most people don't spend all that much time thinking about politics and just want to keep the show on the road.
     
  9. sargon20

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    They plutocrats that run the country have a not so secret agenda to do just that:

    "I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub."

    -Grover Glenn Norquist
     
  10. D_Davy_Downspout

    D_Davy_Downspout Account Disabled

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    Moody's isn't going to downgrade shit. They're just making noises.

    Plus, this is the same group that was rating bad debt AAA prior to 2008, so they're far from trustworthy.
     
  11. Jason

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    This misses the point. The "mistake" the ratings agencies make is that they consistently over-rate countries and banks. They know the dangers of downgrades and are very cautious about them. Almost certainly several EU economies should have lower ratings now than the agencies give them.

    Moodys are warning about a downgrade. Unless there is a clear change in the environment which has caused that warning they will downgrade. The other two have slightly different criteria, but all will broadly do the same. If the US government were to interfere in the running of these agencies other less well know ratings agencies (eg ones that specialise in Asian markets) will downgrade and subsequently move into the market niche occupied by Moodys et al.

    The ratings agencies are pretty much a force of nature. But they are responsible and do pull their punches. The US has a warning, not the downgrade it probably deserves.
     
  12. lucky8

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    Moody's has been saying this for over a year now...I'm calling their bluff...
     
  13. Jason

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    Just as long as lucky8 is not the screen name for Obama that's fine!
     
  14. D_Davy_Downspout

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    The ratings agencies proved themselves as worthless in 2008, and in the aftermath of that, specifically stated that they're not responsible for decisions made based on their ratings....so they themselves admit they're worthless.

    They only exist out of necessity, as it's hard to have an entire sector of the economy that produces nothing worthwhile, if there's not some daddy figure to arbitrarily decide what your crap paper's nominal value is.
     
  15. sargon20

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    ^ You can call them 'worthless' if you want. The fact is and this is no excuse, the departments of those ratings agencies that rated mortgages as AAA are not the same as those that rate government bonds. There was a lot of disagreement between those groups on what the others were doing. But they were making tons of money for the agencies so guess what? Yes everyone looked away from the looming disaster.
     
    #15 sargon20, Dec 15, 2010
    Last edited: Dec 15, 2010
  16. Jason

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    True. But this was probably the right thing to do. The agencies are in a position where their downgrades do enormous damage (to banks, to countries) and they are right to be very cautious about them - and I don't think an earlier downgrade would have prevented the disaster. I am not aware of a single case where they have downgraded and subsequently it has been concluded that they were wrong to downgrade. All the mistakes are in the other direction - they don't downgrade when hindsight says they should have downgraded.

    The EU has considered setting up its own ratings agency with an EU focus and as an alternative to the big three. However the idea now seems moth-balled. The realisation is that an EU ratings agency would have to act in much the same way as the big three - cautious about downgrading (and therefore open to claims of incompetance) but nonetheless forced to downgrade when data makes this necessary (and open to the Greek complaint that the agencies caused the problem).

    Probably the ratings agencies do about as good a job as can be done. But they are terribly unpopular and no politician is going to want to come out and say this.
     
  17. B_talltpaguy

    B_talltpaguy New Member

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    If you believe this is the wisest course of action, then you're an even bigger idiot than I thought you were.
     
  18. Bbucko

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    Though economics is hardly my strong suit, this makes sense to me...

    ...as does this. The last sentence is especially accurate.
     
  19. Speculator

    Speculator New Member

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    Hate speech, please cut it out.
     
  20. B_VinylBoy

    B_VinylBoy New Member

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    Not hate speech. Stop being a baby and deal with the scrutiny. :rolleyes:
     
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