Well, instead of taking the dollars from the huge trade surplus they have with the United States and buying treasury bills, they would be more than welcome to buy cars, tractors, planes, and other trinkets from our factories instead.
Excuse me? We’re almost as big as California! And have almost as much industry, if you count mining and lumber the same as silicon valley. 
What exactly do you mean by “sustained threat”?
I don’t understand this either. In order to raise the debt ceiling, both parties had to agree, right? And either side was free to totally capitulate to the other side’s demands or to hold out, right?
They only had to agree to raise the debt ceiling or not. The Democrats were happy to simply raise it. It was the Republicans, alone, who attached demands. Raising the debt ceiling is not agreeing to take on more debt; it’s simply agreeing to honor the debts the US has already taken on. So essentially the question was, “do we honor our debts, yes or no?”, and it would only have required 25 Republicans in the House and 7 Republicans in the Senate to vote yes with all the Democrats; the rest of the Republicans could have lodged protest votes. That’s what’s always happened before. But this time the Republicans said that unless their demands were met, they would vote ‘no’ en masse and allow the US to default on its obligations, even though both John Boehner and Mitch McConnell acknowledged that would be very damaging. They were, in Mitch McConnell’s own words, holding the country’s creditworthiness as a “hostage worth ransoming”.
S&P’s report says they downgraded the US’s credit rating primarily due to the political wrangling over the debt ceiling. That wrangling was entirely, and deliberately, constructed by the GOP. That’s why S&P essentially points their finger at the GOP for the responsibility.
Sure, it’s been a while, but i used to trade and sell convertible bonds. Basic tenet of investment banks, credit analysts and bond traders is that corporate debt can not be rated higher than the sovereign. It has logical sense, no matter how good a company you are, you can’t be AAA in say Greece because of the sovereign Greek risks.
Again, going back to my days in the markets in the 1990’s, AAA sovereigns are not created equal. US is the big dog based on population, infrastructure, manufacturing, resources, education, political system, etc. Hong Kong, while rated AAA, also logically can’t be compared as “safer” from government default than the US except on a very narrow basis.
regardless of the debt market, for now and through at least this decade, the US is the only “safe haven” in the global investment community. Switzerland may be nice but you can’t invest billions of dollars there in the blink of an eye without moving the markets. The US is by far the biggest most liquid bond market in the world with maturities up to 100 years.
A large component of the GOP continued to insist that we should not raise the debt ceiling and that defaulting on loans would not be all that bad.
That’s why.
Assuming that’s true, the Democrats could have easily capitulated to those demands. They could have easily announced that they would agree to whatever demands were attached. Agreed?
P.S. What exactly is a “sustained threat”?
Can you give me a cite for this? And assuming it’s true, then why did a deal take place at all?
Yeah, I doubt it. Guess what? The rates on 30 year treasuries are near record lows, and most people consider the US a safer place to park money than Asia, the Euro zone, or the UK. If AA+ is too high, then AA+ is too high for anybody, not just the US.
Well, it’s just the S&P. Moody’s did not downgrade. Considering S&P irresponsibly let Lehman keep a high rating up to and during the crisis and just downgraded Japan last January (to no effect and the yen is still considered a ‘safer’ currency), I’d rate Richard Nixon’s credibility higher than theirs.
The Democrats made no demands for raising the debt ceiling. They were perfectly willing to raise it without preconditions. It was Republicans that demanded conditions.
Keep in mind that this is the same rating agency that gave AAA ratings to all those crap mortgage companies. They’re just trying to redeem their credibility.
Assuming that’s true, the Democrats could have announced that they would agree to whatever conditions the Republicans wanted, right?
“I’m going to shoot this hostage if you don’t agree to my terms. Therefore, it will be your fault if I shoot the hostage”.
I take it you are saying that it’s inherently wrong for a political party to use the debt ceiling as a bargaining chip? That it’s analogous to holding somebody hostage?
By the way, here is a newspaper article from 1971:
Nicely stated. it is a clear indication to the public that something is wrong and needs to be corrected.
Can you explain this? What your saying is that analysts don’t actually look at a countries vital statistics, eg dept per capita, growth potential and infrastructure but actually just say “The US is the safest, thats an axiom, no one can be safer than the US”
Maybe that was the case when you were trading bonds, but I find it hard to believe that is still true in the current situation. As an example, Australia’s rating is now higher than the US according to S&P, and considering the state of our economy and the fact that we largely escaped a mortage meltdown (because we never de-regulated and had the junk mortages problem) why shouldn’t Australian government debt be considered safer than US debt?
I don’t see why this should be the case. The company I work for has a higher credit rating (Moody’s) than the sovereign, even though it is 95% owned and fully controlled by the government. How much more so for companies that are privately owned.
Here is an article from June 1944:
Imagine I threaten to shoot a hostage unless you give me $1000. You agree to pay me a ransom, but you want to negotiate on it. I refuse. Does that mean it’s partly your fault we’re arguing in the first place? Of course not. If you want a cite for the fact that a number of Republicans wanted to let the country default, or that it’s legitimate to describe it as a hostage situation, here’s the direct quote from Mitch McConnell:
[QUOTE=Mitch McConnell]
““I think some of our members may have thought the default issue was a hostage you might take a chance at shooting,” [Mitch McConnell] said. “Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming.””
[/QUOTE]
Look, if both sides were genuinely to blame for this, I’d be happy to say that. When they came close to a government shutdown earlier in the year that was a standard political disagreement in which both sides were partly to blame. But in this case, it was 100% the Republicans, and what they were holding hostage was something that had the potential to seriously damage the US’s credibility (and given this credit downgrade, it arguably already has). I would characterize it as unpatriotic and even for this current crop of Republicans, I’m surprised they did it.