# S&P downgrades US Debt
**URL:** https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838
**Category:** Great Debates
**Created:** [April 18, 2011, 3:10pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838 "2011-04-18T15:10:31Z")
**Posts on this page:** 20
**Page:** 4
### Author:  [@RTFirefly](https://boards.straightdope.com/u/RTFirefly)
#### Post date: [April 19, 2011, 12:26pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/61 "2011-04-19T12:26:08Z")
> [@wmfellows](#):
>
> See the fucking articles mate, they show the data.
No, **you** can show the key facts, with links back to the articles.
If you can’t be bothered to do that, there’s no reason why I should click through to even find out how long or short the linked material is.
You’re the guy who wants to win the argument without actually having to make an argument. I’m the guy who won’t play along. Nice to have met you, but the experience has worn a bit thin.
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### Author:  [@RTFirefly](https://boards.straightdope.com/u/RTFirefly)
#### Post date: [April 19, 2011, 12:34pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/62 "2011-04-19T12:34:45Z")
> [@Steve\_MB](#):
>
> I think it’s basically a political message to the Tea Party firebreathers (“Step out of the china shop with your horns up”).
S&P to GOP (to the tune of the Toreador March from Bizet’s _Carmen_):
_Please keep your bull outside the china shop,
no bulls allowed, that’s where they stop.
When the china breaks, someone must pay,
so keep your bull away!_
Lyrics by Richard (“[Beethoven’s Wig](http://www.beethovenswig.com/index.php?page=cds&category=01--Beethoven-squo-s_Wig_CD-squo-s&display=34)”) Perlmutter.
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### Author:  [@furt](https://boards.straightdope.com/u/furt)
#### Post date: [April 19, 2011, 1:50pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/63 "2011-04-19T13:50:07Z")
> [@Steve\_MB](#):
>
> I think it’s basically a political message to the Tea Party firebreathers (“Step out of the china shop with your horns up”).
Of course it is. It’s all the fault of the people you don’t like. :rolleyes:
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### Author:  [@wmfellows](https://boards.straightdope.com/u/wmfellows)
#### Post date: [April 19, 2011, 2:00pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/64 "2011-04-19T14:00:21Z")
> [@RTFirefly](#):
>
> No, **you** can show the key facts, with links back to the articles.
>
> If you can’t be bothered to do that, there’s no reason why I should click through to even find out how long or short the linked material is.
>
> You’re the guy who wants to win the argument without actually having to make an argument. I’m the guy who won’t play along. Nice to have met you, but the experience has worn a bit thin.
Win an agument? There’s nothing to “win” - but perhaps that’s the problem… If you’re too lazy to click and see the confirmation of Japan debt holding in the articles, fine. You can ask Chinaguy for different cites and quibble pointlessly with him.
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### Author:  [@Snowboarder\_Bo](https://boards.straightdope.com/u/Snowboarder_Bo)
#### Post date: [April 19, 2011, 3:14pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/65 "2011-04-19T15:14:46Z")
> [@RTFirefly](#):
>
> No, **you** can show the key facts, with links back to the articles.
>
> If you can’t be bothered to do that, there’s no reason why I should click through to even find out how long or short the linked material is.
>
> You’re the guy who wants to win the argument without actually having to make an argument. I’m the guy who won’t play along. Nice to have met you, but the experience has worn a bit thin.
Aye, that seems to be his MO: dismiss out of hand what he wants to, and then assert that he’s right about things without actually saying anything.
A bit thin, indeed.
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### Author:  [@wmfellows](https://boards.straightdope.com/u/wmfellows)
#### Post date: [April 19, 2011, 3:22pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/66 "2011-04-19T15:22:53Z")
My god what whinging on.
From a one page article evidently some folks are too precious to click and read, 2nd para:
> [@](#):
>
> Japan funds 93% of its huge government debt internally, which is seen as an advantage compared with countries like the United States and elsewhere
3rd Para
> [@](#):
>
> Japanese banks (including the state-owned Japan Post Bank) are the largest holders of total outstanding Japanese Government Bonds (JGBs), which amounted to $6.2 trillion dollars as of the start of fiscal 2009, … banks hold just under 40% of total JGBs (as of September 2008) in issue provides a stable source of funding for the government
> [@](#):
>
> Life and non-life insurance companies in Japan are the second-largest single holders of JGBs, accounting as a group for just under 20% of the total.
> [@](#):
>
> Similar arguments apply in the case of Japan’s public pension funds (which hold 11.7% of outstanding JGBs) and private pension funds (which hold a further 3.8%).
> [@](#):
>
> The Bank of Japan (BoJ) now owns close to 9% of outstanding JGBs, …, Japanese households own just 5.2% of outstanding JGBs and “foreigners” 7.9%, although in both of these latter cases the proportion is rising steadily.
Bit thin is the complaining and muttering.
No dismissing out of hand, just plain old basic knowledge. All to be had with one simple click.
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### Author:  [@BigT](https://boards.straightdope.com/u/BigT)
#### Post date: [April 19, 2011, 3:28pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/67 "2011-04-19T15:28:03Z")
> [@wmfellows](#):
>
> Win an agument? There’s nothing to “win” - but perhaps that’s the problem… If you’re too lazy to click and see the confirmation of Japan debt holding in the articles, fine. You can ask Chinaguy for different cites and quibble pointlessly with him.
You are obviously trying to convince Bo and anyone who agrees with him that the movie was a hijack. You have a position you want someone else to adopt, and making statements to that goal. Such a statement is an argument, and the action is called trying to win an argument.
So if you aren’t making an argument, then your statements are completely meaningless and and everyone is justified in ignoring them.
And if you are making an argument, it’s unconvincing because you refuse to do any work. I can just as easily plug something into google and get a few sites.
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### Author:  [@wmfellows](https://boards.straightdope.com/u/wmfellows)
#### Post date: [April 19, 2011, 3:47pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/68 "2011-04-19T15:47:00Z")
**I’m not in any way addressing the useless bloody movie**. I made a side obs re Japan (tangential, 100% unrelated to whining about movies), gave cites. I also note Chinaguy - an actual specialist as I recall in Bonds - said the same thing. Now, I have saved them the enormous labour of simply looking at the sources (the original request) and confirmed what I said as a side obs. The preciousness of argumentation here and “winning” really can be quite astounding.
But I do see I forgot to [relink to article for the quotes,](http://www.forbes.com/2009/06/29/japan-debt-financing-business-oxford-analytica-japan.html) an inadvertent omission.
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### Author:  [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)
#### Post date: [April 19, 2011, 5:02pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/69 "2011-04-19T17:02:49Z")
> [@Magiver](#):
>
> regardless of how anyone feels about the S&P statement there is a growing trend to abandon the US dollar and sell off it’s bonds. Japan’s crisis may force them to cash them in. The inflation rate is rising.
Yep, this is all silly. People are dumping US bonds to such an extent that investors are currently willing to buy 5 year bonds at negative rates of interest because for some reason they think that they’re a good investment compared to private sector debt/equities even though they’ll be losing money over the five year period.
> **[Interest Rate Statistics](https://home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield)**
>
> Beginning November 2025, all data prior to 2023 will be transferred to the historical page, which includes XML and CSV files.NOTICE: See Developer Notice on changes to the XML data feeds.Daily Treasury PAR Yield Curve RatesThis par yield curve, which...
Go and look at inflation-ptotected bonds (TIPS) yields as well to see the spread between them and treasuries. The spread shows you what the market, actual investors believe will be excess inflation (over the standard 2.5% target) over the next 30 years. Yeah.
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### Author:  [@Snowboarder\_Bo](https://boards.straightdope.com/u/Snowboarder_Bo)
#### Post date: [April 19, 2011, 5:19pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/70 "2011-04-19T17:19:34Z")
> [@wmfellows](#):
>
> **I’m not in any way addressing the useless bloody movie**.
Except to again address it and deride it as “useless”, even tho you have yet to show one instance of information in the movie that was factually incorrect. :rolleyes:
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### Author:  [@wmfellows](https://boards.straightdope.com/u/wmfellows)
#### Post date: [April 19, 2011, 5:23pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/71 "2011-04-19T17:23:18Z")
> [@Dick\_Dastardly](#):
>
> Yep, this is all silly. People are dumping US bonds to such an extent that investors are currently willing to buy 5 year bonds at negative rates of interest because for some reason they think that they’re a good investment compared to private sector debt/equities even though they’ll be losing money over the five year period.
>
> [Interest Rate Statistics | U.S. Department of the Treasury](http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield)
>
> Go and look at inflation-ptotected bonds (TIPS) yields as well to see the spread between them and treasuries. The spread shows you what the market, actual investors believe will be excess inflation (over the standard 2.5% target) over the next 30 years. Yeah.
Quite, that is why I asked for where his data was coming from - although you should say negative real rates of interest so as not to confuse.
Snowboarding person: move on, you’re boring me. The useless bloody movie is not relevant to this and the entire bloody Japn thing has fuck all to do with it.
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### Author:  [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)
#### Post date: [April 19, 2011, 5:53pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/72 "2011-04-19T17:53:58Z")
> [@wmfellows](#):
>
> Quite, that is why I asked for where his data was coming from - although you should say negative real rates of interest so as not to confuse.
>
> Snowboarding person: move on, you’re boring me. The useless bloody movie is not relevant to this and the entire bloody Japn thing has fuck all to do with it.
Talking about Japan though, this is an actual recent advert placed by the actual Japanese treasury for Japanese bonds :
[Photo and Travel Tips | Tinypic](http://tinypic.com?ref=jql5ax)" target=“\_blank”\>\”)
\
[http://i55.tinypic.com/jql5ax.png](http://i55.tinypic.com/jql5ax.png)
One of those should work. Makes me want to buy Japanese bonds. 🙂
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### Author:  [@Jas09](https://boards.straightdope.com/u/Jas09)
#### Post date: [April 19, 2011, 6:43pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/73 "2011-04-19T18:43:09Z")
Another idle though: if US Govt Bonds become less than AAA rated, doesn’t that almost inherently mean that every other debt instrument becomes lower-rated as well?
That is, if the “gold standard” becomes increasingly risky you either need a new “gold standard” (which, what would that be?) or you have merely raised the floor on risk.
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### Author:  [@RTFirefly](https://boards.straightdope.com/u/RTFirefly)
#### Post date: [April 19, 2011, 7:32pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/74 "2011-04-19T19:32:36Z")
> [@wmfellows](#):
>
> My god what whinging on.
> From a one page article evidently some folks are too precious to click and read, 2nd para:
Hey, some people are too precious to copy and paste a simple sentence from their link. :rolleyes:
Now, the mechanism, please, by which the 93% of domestic purchasers of Japanese debt don’t want the S&P-influenced lower price that the 7% of foreign purchasers are able to get, because they won’t pay more on account of believing S&P rather than their own lying eyes.
Let’s say the Japanese government has 1-million yen 1-year notes at 2% back in 2002, and are able to sell 93% of the notes that they need domestically at par. But in the world market, people believe S&P rather than their own assessments of the Japanese government, so they want closer to 4% before they’ll take the plunge on Japanese debt: they’ll buy those notes for 980,000 yen, or not at all.
Two things can happen: either the Japanese domestic buyers buy up the rest of the debt at par, good citizens that they are, or the outsiders get their price. But you’re not saying that Japanese domestic investors bought 100% of the debt, so that’s out.
But if the outsiders get their price, you have to explain why the Japanese investors don’t start saying that they, too, want to pay only 980,000 yen for those notes.
Because if they do get that price, then S&P drove up the interest rates of Japanese bonds. But that didn’t happen either.
What we’re left with is that S&P didn’t affect the price that furriners were willing to pay for Japanese debt (my claim), or that the price that furriners could get didn’t affect what domestic investors would pay, even though they knew they could get a better deal if they insisted (must be assumed implausible until shown otherwise).
---
### Author:  [@wmfellows](https://boards.straightdope.com/u/wmfellows)
#### Post date: [April 19, 2011, 7:50pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/75 "2011-04-19T19:50:05Z")
> [@RTFirefly](#):
>
> Hey, some people are too precious to copy and paste a simple sentence from their link. :rolleyes:
Yeah mate, just too precious. You asked for sources, givne.
as for the questions about how the Jpn soveriegn bond market operates (or bond markets), ask CG in a GQ thread. He’s the old Bond man. I don’t see any point playing the argument game with you.
---
### Author:  [@Snowboarder\_Bo](https://boards.straightdope.com/u/Snowboarder_Bo)
#### Post date: [April 19, 2011, 7:53pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/76 "2011-04-19T19:53:08Z")
> [@wmfellows](#):
>
> Snowboarding person: move on, you’re boring me. The useless bloody movie is not relevant to this and the entire bloody Japn thing has fuck all to do with it.
Again with deriding the film. I’m boring you? Too bad. Cite some reason for the film being “useless” (as you’ve twice now derided it) or cite some facts the film was in error about.
Matt Koppenheffer understands why S&P’s involvement in the recent crash is relevant to many people:
[
> [@Matt Koppenheffer](#):
>
> And as far as accuracy in judging creditworthiness goes, perhaps it’s a cheap shot to bring up those pesky mortgage and other structured securities that S&P and fellow raters Moody’s and Fitch deemed to be of AAA mettle before they cost investors billions (trillions?), but it’s not like that experience is ancient history.
]([Standard & Poor's Lowers the Boom on the U.S. | The Motley Fool](http://www.fool.com/investing/general/2011/04/18/standard-poors-lowers-the-boom-on-the-us.aspx?source=isesitlnk0000008))
As the film touches on, it seems less-than-impossible that the ratings agencies were compromised and that to some degree they colluded with the people doing the trading (and lobbying for legislation that made what happened “legal”).
In light of that, it seems less-than-impossible that S&P is acting as some sort of agent provocateur or something to force the US to reach a budget deal in haste, rather than simply allowing the legislative process to work itself through. I mean, it’s not like we haven’t seen that scenario taking place recently in other US legislatures, is it?
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### Author:  [@Snowboarder\_Bo](https://boards.straightdope.com/u/Snowboarder_Bo)
#### Post date: [April 19, 2011, 7:54pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/77 "2011-04-19T19:54:33Z")
> [@wmfellows](#):
>
> as for the questions about how the Jpn soveriegn bond market operates (or bond markets), ask CG in a GQ thread. He’s the old Bond man. I don’t see any point playing the argument game with you.
In a forum called “Great Debates”, you don’t want to debate? :dubious: How… droll. :rolleyes:
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### Author:  [@wmfellows](https://boards.straightdope.com/u/wmfellows)
#### Post date: [April 19, 2011, 8:04pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/78 "2011-04-19T20:04:44Z")
The film and the specifics of the Japanese bond market don’t tell us anything about S&P downgrade. for the latter, I believe China Guy was an actual real live operator in this market, so for those with tedious operational inquiries they can ask him. The film is your obsession, boring.
---
### Author:  [@wmfellows](https://boards.straightdope.com/u/wmfellows)
#### Post date: [April 19, 2011, 9:08pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/79 "2011-04-19T21:08:49Z")
I did miss this item:
> [@Snowboarder\_Bo](#):
>
> … it seems less-than-impossible that S&P is acting as some sort of agent provocateur or something to force the US to reach a budget deal in haste, rather than simply allowing the legislative process to work itself through. I mean, it’s not like we haven’t seen that scenario taking place recently in other US legislatures, is it?
Whatever one’s opinion of S&P or Moody ratings (I sense I am a bit more positive on the bond ratings than China Guy), there’s no rational basis to view the S&P note as some “agent provocateur” (queer, I saw the same ridiculous tripe re Greece…). the Note, if one bothers to read it, is pretty clear and has nothing particularly conspiratorial in it. But doubtless conspiracy is more fun.
---
### Author:  [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)
#### Post date: [April 19, 2011, 9:29pm UTC](https://boards.straightdope.com/t/s-p-downgrades-us-debt/578838/80 "2011-04-19T21:29:19Z")
> [@Really\_Not\_All\_That\_Bright](#):
>
> Except that we clearly can be trusted to pay it back. We’ve been paying it back on schedule, with interest, for ~200 years.
And if recent history has taught us anything, it’s that unsustainable curves can be maintained forever in the future, so long as they worked in the past…
No one cares about your past ability to pay. They care about the situation NOW and what it says about your ability to repay in the future. The rest of the world is clearly becoming anxious about the U.S.'s fiscal situation - there’s constant ongoing effort to get off the U.S. dollar as the currency of last resort, for example.
This downgrade is exactly the kind of thing that anti-stimulus economists were trying to tell everyone two years ago. Borrowing money at the scale the U.S. is borrowing is dangerous - any potential gains from a stimulus could be wiped out by interest rate increases, skyrocketing debt-servicing costs, and the loss of the U.S.'s ability to borrow at a lower interest rate than it lends.
It’s this last one that I think will be impacted the most by this downgrade. The U.S. has profited from being the most stable currency, because it meant that it could trade on its reputation for value - it could borrow at lower interest rates than it lent. The gap between those two resulted in major financial advantage for the U.S., which helped it to control a large current account deficit and such.
Reckless spending is destroying the U.S.'s reputation for safety. That will most likely translate into higher interest rates for borrowing - if a treasury auction can’t clear because no one wants to buy the debt, then the U.S. has to increase the interest rate payable to entice buyers. Worst-case scenario is that it can no longer find buyers for all the debt, period. In which case the government might try to monetize it by starting another round of ‘Quantitative Easing’ (i.e. printing money to buy up its own debt). This will further devalue the U.S. dollar and eventually lead to an inflationary spiral and even less willingness from 3rd parties to take on future debt.
S&P is warning that the risk of some kind of event like this happening is increasing. Credit crises can sneak up on you and blow up very quickly - it’s not necessarily something you can see coming from a long way off. All you can see is that the risk of some kind of crisis is increasing, and that’s what S&P is warning about. It could happen in two years, or five, or twenty. But so long as the fiscal situation is on an unsustainable trajectory, it will happen at some point.
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