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S&P Downgrade Effects

Wolff arguing about what the credit downgrade means:

S&P decided – for reasons good and bad, noble and venal – to say what any reasonable observer knows (given that such backlashes hurting creditors have often happened in recent history). Creditors need to worry about the combination of economic crisis, growing inequalities of wealth, income and power, and political dysfunction that now defines the US.
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Voilà, you guys stopped following the constitution back in the 1930's by instauring all those social programs and look at the result.

Now you have more poor than ever and you cain't tax people to pay for them because less and less people have money.
 
I guess markets performing poorly has less to do with downgrade and more with the global slowdown anticipated as the yields on both 2s and 30s are going down. German DAX experiencing heavy selling in export based companies..
 
I 100% support eliminating tax credits for married people, children, mortgages, etc. The government has a revenue issue because it has too many credits. Why should someone who has children be favored over someone else. I would hope that those who have children can afford them without the tax deduction. Same thing with home ownership. Canada does just fine without a mortgage deduction. One could say that this also helped fuel the home ownership bubble. Same thing with marriage. Why should single, divorces and widowed people get punished for not being married.

Government has no business rewarding such sensitive and personal behavior. Instead of taxing "rich" people they should make people pay across the board. I have no children and am not married, why should I subsidize someone else's decision.
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I doubt that the above has much to do with affordability of kids. In economic sense, it means you gotta marry and have kids; ortherwise, you are gonna be taxes.

The reason for following the above policy, especially in Europe- at least it is true in Germany, is that generally speaking population in many rich economies is declining; in other words the fertility rates are below the replacement rates, resulting is higher proportion of old people, who are expensive to support and who are liabilities, and lesser proportion of earning population. A lesser proportion of earners causes fewer tax collections, making it unsustainable to support the old people with the benefits that were promised.
 
As people increase wealth and education they have less children. This is why immigration is so important. If the government stopped trying to influence the private life of citizens it would have much more revenue.
 
The market definitely didn't take the downgrade lightly - down 630+ points. What's more France and UK are under scrutiny. Although, France, according to me, is in a much more precarious, as of now, situation than UK is. However, it could all change if banks in UK collapse just as they did in Ireland.

Anyway, considering the rout in banking sector and the downgrade of US debt, particularly BofA and Citigroup, I am perplexed as to whether another form of TARP, like than in 2008, would be passed to bailout these banks.
 
I'm just wondering why we still listen to ratings agencies that showed us they were full of imbeciles when we needed them most (ahem, 2008). Furthermore, consider this:

Who exactly is working at these places? Odds are, it's probably a lot of people rejected from the big banks that simply wanted to get into the financial industry, so they took a job at a regulator/ratings agency. After all, unless you're truly some idealistic crazy who believes that the ratings agencies and the regulators can control the best and the brightest who get paid the highest salaries, then odds are, you're working at a second rate company because you couldn't get into a first-rate one.
 
Alexei Smirnov said:
You can't be serious.

This thread has gone into the realm of ridiculous - people debating over childcare credits, of all things.

Seriously, way to ignore the reasons why we are in this mess:

1. Excessive entitlements... those other entitlements: unfinanced tax cuts; Policy of cutting taxes irresponsibly without any way to finance said tax cuts since Reaganomics which jacked up our debt. "Starve the beast" ... at the expense of the American economy and national debt. Good job.
2. Massive military over-spending. 10x more than the next guy down, as much as multiples of the next nations down. 90% military project failure/over-budget rate (imagine if this were the case in industry... people would be fired a LONG time ago...).
3. Dysfunctional healthcare system. Also the most expensive in the world. Massive reform and restructuring desperately needed, but will never happen. Medicare and Medicaid are only symptoms of a much bigger problem in this country. Ironically, all the screaming of cutting medicare and medicaid is exactly the things wrong with this country to begin with - fix the symptom; ignore the cause.
4. Social Security fund that was used as a piggy bank to fund "deficit spending" (see: 1, 2, 3...)... which was fine while the bulk of the country was working. Now that the country is looking to retire, the SS fund is still empty...

As far as child credits go - they're like Gay marriage. Sure, theoretically it is an issue. But we're in wars that eat trillions, we have massive problems with military and healthcare... and you're worried about what, $500 a year of tax break to stimulate our population? Even if you consider that a problem, it's on an entirely different order of magnitude of importance... I hope...
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1. "Unfinanced tax cuts" that's quite a normative statement. If the government took 95% of your income and then lowered it to 90%, would you consider those cuts "unfinanced?" Government expenditures need to be financed, not revenues. What a joke--how do you fund a negative? "Unfinanced tax cuts" is a misnomer propagated by pro-big government pundits. Obviously spending needed to be cut in line with to maintain a surplus, however, that would make the expansionary fiscal policy (that brought us out of a mild 2001-03 recession quite successfully) no longer expansionary. Would you have argued to "finance" TARP through other spending cuts?

2. That's an interesting statistic. First of all it's grossly incorrect--it's only about 6 times higher than China's, and although it is 11th as a percentage of GDP, we are fighting 2.5 wars right now. Not defending the wars at all, just saying, its not nearly as grotesque as the next 2 things you bring up.

3. Totally true. I don't see any politician with the ability to lead tackling this problem legitimately any time soon.

4. Yep. Need to raise the retirement age (maybe not in the next 2 years, but soon), if we are to keep it at all. We probably need to due to the weapons-grade stupidity of the general public, especially as it pertains to personal finances (see post from yesterday).

As for child credits, obviously it's on a different magnitude of importance and money, but it's still a problem. If you want to talk about waste in the military, waste in the Welfare system is equally as significant (and outlays are pretty comparable, Welfare has been between 60-90% the size of military spending for the past 10 years).

And I wouldn't say they're an issue like gay marriage. Gay marriage is a social thing that's largely opposed based on religion. Giving tax breaks to single-mothers just on the basis that they're single is a problem as it could possibly fuel the problem (difficulty raising a child as a single parent)! Maybe government sponsored daycare centers are a better way of helping single mothers out there, not pure cash that can be used, among other things, for illegal drugs. Again, not an argument against drugs, just that the government shouldn't be indirectly sponsoring their purchase...
" Welfare mothers were more likely to use an illicit substance in the prior year than single mothers not receiving welfare; 21 percent compared to 13 percent for any use." http://www.saprp.org/m_pr_archives_detail.cfm?AppID=783
 
Military is an actual real job of the Federal Government. Being a mom and dad to those who after 18 years still cant take care of themselves is not.

Military is 20% of our budget and 4.7% of GDP. It is not the real issue here.
 
If you cut its revenues from one spot, you have to make up the difference (just like in the real world!). That means you have to get the money from somewhere else.
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You could, I suppose, get the Federal Reserve to purchase as much old debt as possible and all new debt, and then have the Fed forgive the debt. It would essentially be inflation financed government spending, and creates a huge moral hazard, but the government does not HAVE to raise taxes to fund spending.

I suppose in theory if government spending was ~6 to 8 percent of GDP then it could safely be entirely financed by Federal Reserve monetary expansions. We wouldn't even need taxes, and inflation would remain about where it has historically been.
 
Alexei Smirnov said:
I don't think TARP is finance-able through other cuts. To bust up recessions you need to to borrow money in the short term. It works that way in hyper-capitalisms like Russia (which actually defaulted on its obligations lol...), it works that way in socialist capitalist states like Sweden. We're merely in between.

...

It's probably just old. And not that grossly incorrect - we still spend 500% more than China... thing is we still overspend in peacetime. Look for a graph of our military spending as % of GDP. It hovers 15%-40% historically.
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Whether you find yourself closer to Keynes or supply-siders, unfinanced tax cuts provide essentially the same expansionary fiscal policy as deficit spending. The question lies only with which magnitude is greater.

Well, comparing 500% to 1000%, that's 100% off. If 100% error isn't grossly incorrect, where do you suppose the "grossly" bar be set?

0_6de73_3f08613_XL

Again, your statistics... they're just plain wrong. I called your bluff and actually did look at a chart. I even decided to one up you and post it here for your viewing pleasure.
Now, look at this large chart of defense spending as a percentage of GDP and compare it to your 15-40% hovering "stat."Since WWII (HUGE OUTLIER) it has sat between 3-15% of GDP. And most of that time could hardly be considered "peacetime." Cold War, Korea, Vietnam, Gulf 1, Iraq, Afghanistan, miscellaneous other undeclared wars......

But I'll give you the benefit of the doubt and assume you meant defense spending as a percentage of total spending. Here's a chart, even then I think your 15-40% seems misleading (I'm not about to graph the percentage myself)....

usgs_line.php

Or maybe you were doing your best minority whip impression and those stats were "not intended to be a factual statement."​
Weak.​

Edit: that statistic isn't just "old" as you suggested. This also doesn't take into account yuan undervaulation.​

Defense spending as a percentage of GDP​


23 China
4.30

2006



24 United States
4.06

2005 est.

source: CIA government factbook
 
Everyone complains about defense. Who do you think protects the transportation water ways from pirates? The USA basically opened Afghanistan up for development. One of the largest untapped areas on the planet. The USA basically made Iraq a pro America democracy (and also one of the largest under developed oil fields).

We need oil. We need metals and minerals. This country and every other one will grind to a halt unless we have a steady diet of natural resources. China is locking down all of Africa because they realize how dependent they are on resources and they also don't want to butt heads with the USA (just yet).

4.6% of GDP is nothing. National Defense is a true responsibility of a Federal Government. All the other nanny state programs are not. I have no issue with welfare, social security, etc, but when people want to nearly eliminate the one true job of the government, in favor of social programs (that have historically been run like crap and misappropriated) I cry foul.

The government has fail with all of the social programs they come out with. More and more money is thrown at schools and you know what? We have the nicest playgrounds and nicest track and fields. American schools focus on fluff instead of actual important stuff. Kids care about their right to wear whatever they want instead of learning.

Pensions for needy old people are fine, but not everyone needs social security. The current pay system is all bull crap. There has to be major reform in this or else it will fail. It isn't a question of if, but when.
 
I haven't really heard anyone blame defense spending for deficits. Perhaps a war, sure. But not defense as in the bloated defense department even in peace time. Everyone always blames SS, Medicare, Medicaid, etc...
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This is a small, anecdotal, non random sample, but last semester I graded quizzes for an introductory economics class, and the one question that slipped almost everyone up was "what is the largest expenditure of the US government". Almost everyone said defense, though the answer was medicare/medicaid.
 
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