Once again I wrote a comment on the previous blog and again it got erased. So I am starting a new blog by commenting on the last one. First I want to say that even though I think the Republicans won the debt ceiling round, I don't agree with some people who say that Obama and the Democrats caved. When negotiating each side has to decide what would be the outcome if a deal fails. In the case of the Democrats failure to make a deal is a catastrophe. For some Republicans, it is what they want secretly or not so secretly. So it was the Democrats who were more desperate and thus have to give more. There are no new revenues as Obama wanted but given the polls show that most people want both cuts and raise revenue, I think it would be difficult for the Republicans to argue against letting the Bush tax cut expired at end of next year.
Unfortunately, I do not share the optimism of LBOAYM from the previous comment about the super committee. Dick Durbin was on Jon Stewart Thursday. Durbin was on the Simpson/Bowles commission. He said they worked for 10 months and came up with several proposals that would have helped. Durbin was also part of the Gang of Six that also came up with bipartisan proposals. The Gang of Six worked for 17 months. Neither one of these groups got anything passed in Congress. They didn't even get voted on. The super committee have 10 weeks! I am going to call them the 12 angry men. I am confident that they are men because the leaders, especially Republicans, already indicated that they are not looking for people who would compromise. Since women legislators are more likely to compromise, I don't think any woman would be selected. Given this situation, unlike the original 12 angry men who had come up with an unanimous decision at the end, I don't think these 12 angry men will come up with any consensus. And if they do, the Congress will vote it down anyways. By the way, if a woman is selected, we can call them the dirty dozen.
Now for the news from yesterday: S@P downgrade the U.S. As I have said before, these rating services are worthless and they are doing the country a disservice. S@P said they have 5 main criteria use to judge a country. I can't recall exactly how the spokesman put it, but it seems to me 4 of the 5 were subjective. The 5th has to do with debt to GDP ratio. S@P admitted, after the treasury pointed it out, that they made a 2 trillion dollar mistake in that calculation. They said it didn't make a difference. Does this make it like this whole process is scientific that the only criterium that is objective is calculated incorrectly? Given that the rating services gave the highest ratings to bankrupt companies right before their demise, nobody should have any faith in their ratings. Of course the Republicans will use this in their campaign against Obama. But it is interesting they would not mention that S@P say the whole debt debate was one reason that cause the down grade. S@P also thinks revenue should be raised. Of course the Republicans will say that S@P's opinions are flawed here!
Saturday, August 06, 2011
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Yeah this whole debt ceiling thing is screwed up. Nobody really thought the S&P would downgrade the U.S., especially after the deal was reached.
ReplyDeleteI have no idea what the S&P's strategy is. At first glance, I thought it was a political move, but even if this is the case, it doesn't favor either side.
I wonder if the S&P really did err in its calculations. If it did, would it reverse its decision? I think to save face, the S&P could possibly raise the U.S. rating in a few months, depending on how the economy/debt is.
I didn't know who was in this "12 angry men" and now you have me scared. I will have to research this because I was under the impression that the committee consisted of moderates from both sides. I still think that if any of these 12 were up for re-election that something will get done.
Maybe with the S&P rating hanging over their heads, it'll force them to work together.
I again want to say hi to Big Brother since it's obvious someone is watching you closely!
-LBOAYM
I figured out why my comments were being erased. If this works then I have solved the problem although in a tech advanced world, I would have been warned that my comments will not be published before I leave the blog!
ReplyDeleteS@P admitted on Sunday that they erred in the calculations. But they claimed that only made a 1.5% difference and that would not change their judgment as a whole. But as I said before, 4 of the 5 criteria they mentioned were subjective and only this calculation was objective so it seems their reasoning was rather lame. I don't think it was political as they actually say that tax increases would have helped which is the Democratic position.
Of the countries that are still AAA, I don't see where France and Britain are better off than we are. Canada is doing better but they are interdependent with us. Hong Kong, Singapore and Finland are better governed than we are but they are too small to be safe haven for the world bond market. As the last couple of days show, people actually bought more Treasury bills and bonds and drove down interest rates. At times of turbulence the U.S. government issues are still the safest according to experienced bond traders all over the world. No smart investor pays attention to S@P ratings.
The problem is most investors are not that smart. So even if the S@P ratings don't mean anything, a lot people are panicking and selling their stocks. Bad news begats more bad news. I think the market will be volatile for rest of this year. The feeling is that Europe and the U.S. have used up their bullets and can't change this. The only hope is China puts up money to save Italy and Spain. This is not because China is stronger than the U.S. and Europe but with their currency reserves surplus and holding of U.S. debts, they may inject confidence over the world and thus stop the downward spiral and allow the western nations to regroup.
I don't think the super committee would consist of any moderates. Boehner, Pelosi, Reid and McConnell each get 3 picks. Boehner and McConnell already said they are not going to send someone who would increase taxes. Pelosi will pick 3 extreme liberals for sure so only Reid may pick a moderate but I doubt it. Someone like Dick Durbin will not be picked for sure. Extremists tend to come from safe districts or states so they are not really worry about reelection. So I am sorry, but I am pessimistic.
OK, well now that you've informed me that this will be a committee selected or comprised of those you mentioned, I feel less confident. How the heck does congress ever get anything done?
ReplyDeleteI was thinking that it would be a bi-partisan group that would work with the CBO, which I think is underutilized.
So if you are right, which I am sure you are, then all the GOP members have to do is stall it out and not get anything done, right? Then the GOP can come back and say that it's all Obama's fault or the Democrats who couldn't get things to work out.
-LBOAYM
Well, 9 out of 12 have been named. One is a woman and so there goes my 12 angry men. But the one woman is not prone to compromise so she will still be an angry one. I don't know all of these people but only one, Max Bauchus who was named by Reid, maybe willing to compromise. So, unfortunately they are likely to stalemate. The only thing that gives a slim hope is that there will be automatic cuts beyond the control of these people if they don't come up with an alternate plan. For example, the Republicans may not like so much cut on defense. Also if no new revenue, then Obama will let the Bush tax cut expired at the end of the year. Even if Republicans pass a bill to continue it, Obama can veto it. So they may want to make a deal. But I doubt all of this and am betting on stalemate.
ReplyDeleteSomebody wrote into LA Times couple of days ago and said that instead of each side picking whom they want on the committee, they should have them pick the people from the OTHER side. I think that is a remarkably logical thing which of course would never be adopted in government.
After I said that France and England are no better than us, I hear that France is being downgraded. With the riots in England, do you think the British will be downgraded soon and thus a domino effect will occur?
Well, the French downgrade, I heard, was a rumor and not true. But yeah, I can see a domino effect, where others will see a downgrade.
ReplyDeleteI think it would help in the long run though to see these other countries get downgraded if the US continues at the grade it's in now. It's a leveling of the playing field and a correction. Kind of like grading on a scale, I would think.
Sure, the markets would go crazy, but they're already crazy. In the short term it will probably be a disaster, but the markets should auto correct since there's a lot of capital out there. Well, that's my opinion, but then again, I'm not an economist and am looking at it from a stranger perspective.
I really like the idea of picking the other side's members. If there were enough public support for something like this, can you imagine the amount of work they can get done in Washington?
-LBOAYM