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S&P Downgrades USA's Credit Outlook

Discussion in 'Sports and News' started by CarltonBanks, Apr 20, 2011.

  1. CarltonBanks

    CarltonBanks New Member

    I know this happened a couple of days ago, but what are the ramifications of this? Will this cause interest rates to rise? I know China is on the Treasury to protect bondholders against a plunging dollar...how is this all going to play out? Is it time to start stockpiling canned goods and seeds? The University of Texas just bought $1 billion in gold boullion...do they know something we don't. I am no economist at all and am really curious as to what this all means, and if there is a way out. Please, let's not turn this into a pissing contest.
  2. RickStain

    RickStain Well-Known Member

    Re: S&P Downgrades USA's Credit Rating

    That's factually inaccurate.
  3. CarltonBanks

    CarltonBanks New Member

    Actually, you are right. It changed the outlook, not the rating. My questions still apply.
  4. dixiehack

    dixiehack Well-Known Member

    Re: S&P Downgrades USA's Credit Rating

    Link for the UT story? And correcting the thread title would also be nice.
  5. secretariat

    secretariat Active Member

    Re: S&P Downgrades USA's Credit Rating

    You need to correct your initial title, Carlton. Changing your latest doesn't change the thread title.
  6. RickStain

    RickStain Well-Known Member

    The ramifications are the same as they've always been, imo. Americans and their politicians are so desperate to believe that the prosperity of the 1990s and 2000s was some sort of natural right that they'll keep borrowing like madmen to try to keep up appearances and delay the inevitable correction. The longer they delay it, the worse it'll be when it gets here.

    There's a time to borrow and inject money into the economy. It's very early in a recession when you don't want the economy doing damage to itself that will cost more to fix in the long run (i.e. maybe a $100k government expenditure keeps a factory from shutting down entirely, when it will cost $200k to restart the factory later when the economy starts growing again). We are way past that point, and all we have now is people trying to live beyond what we can afford as a country on loans that we'll have to pay back with interest.
  7. CarltonBanks

    CarltonBanks New Member

    Do you think we should increase the debt limit again? This seems like a cycle that is never going to end. When Bush was president the Repubs all talked about how raising the debt limit was critical, while the Dems talked about how it was a failure in leadership. Now they are both taking the exact opposite approach as they had during the last administration. It seems like both sides are perfectly content to gamble with our future, depending on who is in the big boy seat.
  8. RickStain

    RickStain Well-Known Member

    No. I do not think we should increase the debt limit and I think we should undertake immediate austerity measures to reduce the debt (not just the deficit, the debt). It'd suck hardcore for the economy in the short run, but it'd be better in the long run.
  9. CarltonBanks

    CarltonBanks New Member

  10. Dick Whitman

    Dick Whitman Well-Known Member

    Debt would be a lot more acceptable if it were spent correctly. The problem is that, from local villages to the federal government, all spending is focused on now, now, NOW!! Give me immediate results or have a seat. As much as we lionize democracy, it can kind of suck sometimes. Majority rule elections don't measure voter intensity. And most voters are brutally uninformed. Democratic elections are the most devastating kind of market failure.

    I was thinking about this yesterday in my car. What if we went back to the beginning of the "war on drugs," and took all the money we've spent on it through the years, and instead invested it all on early-childhood education then and there. Today we would have less drugs and less crime, I bet, by a considerable amount.
  11. The Big Ragu

    The Big Ragu Moderator Staff Member

    Since I have overposted about all of this on the gold thread, I'll keep most of this post to the ramifications for our ability to issue more debt.

    It has nil effect on our ability to raise debt, even if we don't look like we are doing much to control our debt.

    First, S&P putting out a comment doesn't change anything fundamentally. They basically said we have overextended ourselves and our Federal Reserve has been making it easy for our politicians to get away with it. They said what EVERYONE knew already. So nothing changed on Monday. It was just a comment by S&P. And there was a reaction -- a stupid reaction, since S&P basically said, "The emperor has no clothes," something everyone could see already.

    Secondly, the world is such a mess right now that the U.S., ugly, full of warts and all, STILL looks safe compared to everywhere else (except for some small currencies that couldn't meet world demand as a store of wealth). The dollar is finally selling off today (see China in next paragraph), but it can only take so much of a hit when the Euro might not even survive and the catastrophe in Japan has left the Yen reeling.

    The one wild card is that people look for two things -- stability combined with the highest yield. Enter China! Because China has been raising rates in a feckless attempt to control inflation, their yields have been going up. Then yesterday, China FINALLY announced that it was going to let the Yuan float more (but they still won't let it float). They are that stricken by inflation. They are going to cede economic growth in attempt to use the currency to reign things in.

    The Chinese are playing it pretty savvy right now, I bet. With the dollar weak, and U.S. equity markets going to stagnate now (because of what S&P said), they see an opportunity to make the Yuan more of a global currency and take some of that standing away from the U.S. They are close to allowing Yuan funds raised overseas back into China (right now you need approval from the government), which would open up their debt markets to people without having to convert to dollars -- which is where you get slaughtered. And because they are offering higher yields, but look relatively stable, they could attract a lot of capital if they open the doors.

    A higher percentage of global trade is being done in the Yuan. If that increases, it puts a chink in the U.S. armor, because the one thing that has allowed us to run debt without people blinking is that we are the "global currency." Take away that standing and we are no different than Greece or Portugal.

    All of that said, that is a lot of ifs. It's clearly not good that we have created an environment in which there is even a hint that our debt looks riskier. And the debt load is still a major problem that is just getting worse, so there is a level where we could conceivably default. That said, we still are winning the "least ugly" beauty pageant for the moment, as I put it in a post yesterday.

    Lastly, what ALL of those problems add up to: precious metals have attracted a lot of money for a reason. When yields are low around the world and inflation is a problem, gold & silver are great stores of wealth.
  12. Armchair_QB

    Armchair_QB Well-Known Member

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