The downgrade delirium
So, there was a lot of late Friday sound and fury over S&P’s downgrading of America’s debt.
Pardon me while I eschew the conventional chest-beating on both sides over the news.
As I commented last week, I give no credibility to the whims and determinations of credit agencies that made abysmally wrong-headed judgments about the subprime meltdown.
And as Holman Jenkins of the WSJ, whom I quoted last week, noted:
America’s spending debate does not remotely make it any more of a default threat than it was a week or month or year ago. America’s IOUs are still completely acceptable to the markets.
Even in the long term, the threat is not to bondholders. The threat is to Americans under 50 who think they can rely on Social Security and Medicare. The threat is to countries that hope the U.S. will fight their wars for them. The threat is to K Street bandits trying to live off federal handouts.
But the debt to bondholders will be the last to be dishonored—not least because, unlike a lot of claimants, bondholders can be satisfied with inflation-ravaged dollars.
For the unwarranted power granted to rating agencies, which after all merely issue opinions, blame U.S. law and regulation. These require bankers, pension funds and other regulated investment funds not just to consult ratings, but to act on them.
When the cart is properly positioned in relation to the horse, notice what happens. Ratings opinions are treated as opinions. S&P recently downgraded the debt of Japan. The price of Japanese debt actually went up because the market made its own judgment. Citigroup and Goldman Sachs last week promoted a package of Triple-A commercial mortgages to investors. Investors vetoed the deal because they didn’t agree with the ratings.
This is not to say that America doesn’t have bitter political wrangles ahead. But S&P and others offer nothing of value in rating the messiness of our political debates.
On the contrary, they step out of line in presuming they must be satisfied with our current spending priorities in order to be satisfied with the long-term payability of America’s formal debt.
Same applies this week as last week. Look no further than the price of the 30-year US Treasury bond over the last six months. Translation: they don’t care what the damaged credit ratings agencies say — especially one like the S&P that rushed to insert itself into the political discussion while making reported math errors and ignoring them.
Recessions are great for Obama’s bondholder pals. Heckuva job, Barry!
*****
Update (DP): Harry Reid has responded to the news of the S&P downgrade. You’ll be as surprised as I was to learn that Reid thinks this is a clear sign that we need tax increases. US finances might not be predictable, but that isn’t the case when it comes to Reid’s solution for any problem. “Raise taxes” is like duct tape in the Democrats’ tool box — it can fix anything. Harry Reid makes any one-trick pony look multi talented.
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I like the idea of 400,000 American troops at the border. That way, the F-Troop that is the Mexican military won’t keep “accidentally” crossing our border.
And the illegals are a biproduct of all of the drug trafficking and money laundering that is so profitable for our “too big to fail” banks and their dirty politicians.
Putting 400,000 US Army troops and having them sit on their single points of contact is a gigantic waste.
Remember it is a volunteer Army. Who wants to guard a border.
Actually, what I advocate is to redeploy our military around protecting American interests rather than defending countries who then deny us access to their markets. We could slash the cost of our military by closing hundreds of bases and keeping much our military might in reserve in places along the border.
We have a large military installation keeping Fort Knox safe, for instance. Those troops are volunteers too. Just place our military bases in places that strengthen our defense instead of appeasing the state politics requiring a base as a payoff to local politicians.
Let’s see what happens to the credit ratings of Germany and other “allies” once their currencies aren’t being subsidized by American defense spending and discounted pharmaceuticals that Americans don’t get.
The American economy is still an awesome monster if we could just go back thinking like Americans.
BTW, there are very good reasons why Fort Hood is in Texas and Camp Pendleton is in CA beyond political considerations. I am not advocating that we use our troops as border guards but as a muscular physical deterrent to shut down the narcotics superhighway that is now our border.
And it’s not just on the ground, some of the savings should be redirected to our seaports and smaller airports (which are so plentiful in Texas). I would like to read news reports of these.
Breaking up the big banks so that they could be audited effectively is probably the biggest and most effective deterrent. It is easier to know which snake ate the pig if we make sure that snakes don’t grow too big. We had a terrific economy for a very long time when our banks were never among the largest in the world. Big banks are not efficient. We don’t need to be competing against the large foreign banks for the money laundering American currency. If the American economy is not available, it is very, very difficult to launder dollars in non-dollar based economies.
That would be like using an anvil as a fly swatter. Not necessary.
You will have to elaborate because I don’t understand how locating critical military bases we already have to locations that would make them a real deterrent to the main problem is using an “anvil as a fly swatter”. The war going on at our borders is not a mere nuisance, it is an existential threat.
Hi Flyover…check out this video, my Uncle,( Ret. Navy) sent me.
RUSSIAN AA-12 Fully Automatic Shotgun
http://www.youtube.com/watch?v=WOoUVeyaY_8
Phil, You have to tailor the force to the threat. The threat the US military is designed to deter and defeat is quite different from the threat on the border.
It is why most European countries during the Cold War had separate entities for guardinth their borders.
Phil the logic behind your “what” is just fine in most respects. Just tweak the “who” and the “how” and the solution is there.
The dilema is that admittedly illegal alien interdiction and drug cartel interdiction are too totally different animals. Your focusing on one only and commenting is a good way to discuss it.
I saw the AA-12 once before. Yep, it is nasty.
It is a very good time to starve the beast. Everyone who gets a paycheck,head for your HR department on Monday and change your deductions to 20 or so. You will probably not have any taxes deducted. And the government will not get your money to play with! Just be sure to put the appropriate money aside so you can pay your taxes in April. That way, you are not cheating on your taxes, like they do in Congress.
I can’t do that because I am retired and get Social Security. Otherwise, I would!!
If enough people do this, they government WILL feel it!! It will cause problems and some of those problems will backfire on us. But how could it get much worse than it already is? Worth a try.
And the second thing was “we need another stimulus”. And the third was, “It was the Tea Party’s fault”. They are getting awfully predicable, aren’t they?
Dealing with the narcotics trade IS the solution to the invasion by illegals and to do that is a military operation, not border guards. We need to be ready to chase these traffickers into Mexico and where ever they go, even if it means chasing down to the Panama Canal and beyond.
Let’s hear your alternative. All you are doing so far is criticizing my arguments with vague comments without explaining what you mean. I confused over the “who” and the “how”, what does that mean? You seem to be talking about border enforcement to keep out the illegals while I’m talking about taking care of the drug war. The illegal immigration is a only a symptom that will go away once we win the main war.
Phil:
Here’s my plan:
1-BUILD THE FREAKING FENCE.A double fence, at least 20 feet high, of reinforced concrete,with sensors to detect underground activity.
2- Deploy the armed forces to protect OUR BORDER. We already used them to defend South Korea, Germany, etc. so they’ll have experience doing the job. Use Predator drones to supplement them.
3- Hit the employers-HARD. Fine them 100-250k with an aditional 6 months in jail per ilegal, and you’ll see how fast the unemployment in this country goes down.
And if the Mexican government doesn’t like it, simply tell them: TOO FREAKING BAD, MI AMIGO!!!!!
The downgrades isn’t so much about the shrinking dollar as it is about the shrinking ability of old school Obamacrat and GOP LOSERship to address the fiscal mess they’ve both played roles in creating.
Anyone with any sense about how to balance a budget would start by addressing the total joke that baseline budgeting continues unabated at a 7% increase or more each year… Seems while there’s so much DEBT (not just deficit spending), MINIMALLY the baseline ought to be related to notch under the previous year’s rate of private sector growth, with any excess revenue going to pay down the debt, not new and bigger programs or blue union paychecks and pensions.