What are the odds that Congress manages to screw up the US credit rating again?

[Great_Antibob]

TL;DR on my own previous post.

To sum up: what does an agency’s “guess” to the credit-worthiness of the US matter to the actual credit-worthiness of the US, i.e. how much it actually costs the US to borrow money and the willingness of investors to continue lending the US money?

There’s no evidence it does and plenty of evidence there is no relevance to their ratings, at least for the US, Japan, or any major economy with its own currency. And some evidence it actually trails investor opinion rather than offer any real predictive analysis.

[Buck_Godot]

Isn’t it the case that certain retirement or pension funds have rules that they can’t invest in bonds below a certain grade, and that S&P downgrading T-bills might have an effect on them?

I vaguely remember hearing that this might be problem but don’t have a cite.

[Euphonious_Polemic]

@Martin_Hyde

He said “Canada was downgraded with no ill effect.” He didn’t speak as to their current credit rating. Canada was downgraded by S&P from AAA to AA+ in 1992. In 1994 Moody’s downgraded Canada from Aaa to Aa1, and again from Aa1 to Aa2 in 1995.

Interestingly, that downgrade led to the left-leaning Liberal Government (via finance minister Paul Martin) to introduce balanced budgets, then surplus budgets which paid down some of the debt:

“In 1998, Martin introduced a balanced budget, an event that only occurred twice in 36 years before 1997.[7] In 2002, Moody’s and Standard and Poor’s restored Canada’s domestic and foreign currency debt ratings to AAA”

So it’s not really comparable to the recent US downgrade, which was more to do with how disfunctional the government had become; In Canada it was due to high debt load, a situation that was fixed, thus leading to Canada going back to AAA. Now if the US can get it’s government functional again, I guess they too could go back to AAA status.

Now, of course, our right-leaning Harper-Reform government has piled the debt back on again. So our left-leaning government taxed and spent less (and paid down some debt), while our right-leaning government has done the usual cut taxes, increase spending and put it all on the credit card.

[Martin_Hyde]

@Buck_Godot

Isn’t it the case that certain retirement or pension funds have rules that they can’t invest in bonds below a certain grade, and that S&P downgrading T-bills might have an effect on them?

I vaguely remember hearing that this might be problem but don’t have a cite.

Not really. There was some talk of this because some funds, especially certain endowment funds, pension funds etc do have restrictions on how much they can hold in certain types of assets. However, these rules rarely require they only invest in the highest rated assets–they would normally specify a maximum amount of “subprime” or “below investment grade” debt that can be held. Additionally, it ended up even funds with various restrictions, most of those restrictions were written with the assumption that treasury bonds were the safest investment possible or even “absolutely safe.” So most of these funds allow for investment in U.S. Treasury bonds with no specification on what their credit rating should be, in fact many of the funds, the treasury bond is considered basically the default risk-free investment.

The downgrade in 2011 didn’t really change that calculus and I don’t believe any significant number of funds would sell off treasury holdings just because of another downgrade.

[deltasigma]

So Antibob is going back to the 90’s for examples that no one can verify? Like I’m going to trust anything he says at this point when no one in this thread seems to know that Japan is a special case. That’s why I quoted the 10 yr. yield - .8% for Japan. Do any of you even know what it is for the UST 10 year? Look it up.

Not tell me how Japan has a rating 2 levels lower and yield that is a fraction of what the US pays? Its because anyone with even a passing familiarity with the financial markets knows that Japan is special case.

Amateurs.

[Martin_Hyde]

Shut the fuck up, deltasigma. I don’t know what your background is but on basically every thread to deal with financial markets at all you say incorrect things over and over again and then insult people when they point out that you are wrong. You’re the same guy that thought a prospectus determined a mortgage backed security’s likelihood of defaulting instead of the actual performance of the underlying mortgages–thus showing you don’t understand the difference between actual market behavior versus analyst predictions of market behavior. Maybe that ignorance is why you put much more stock into credit ratings agencies than the sum total of the entire institutional bond market, in regard to U.S. treasuries. (Treasuries actually dropped yields immediately after the S&P downgrade as more and more investors rushed to buy them.)

If you don’t know that Canada had a credit downgrade you’re ignorant. If you don’t know how to verify what I’ve told you, you’re stupid.

You also have not elucidated any concept at all as to why most Japanese debt being domestically owned means Japan doesn’t have to care about their credit rating but the United States does. Just like American investors, Japanese investors are free to buy whatever debt they want, there are no Japanese laws prohibiting Japanese citizens from buying Eurozone debt, corporate debt or etc.

It’s actually also irrelevant that a large percentage of American debt than Japanese debt is owned by foreign investors and governments. As I said, people buy sovereign debt for safety. There is no other sovereign debt issue that has the size of that of the United States or its perceived safety. So where would large investors from overseas park $5 trillion dollars? There’s nowhere to park it other than U.S. Treasuries. About a third of U.S. debt is held by foreign entities, by the way.

[deltasigma]

And you’re the same asshole that keeps pointing to shit that I never said. I’ve been right on every economic topic I’ve posted. If you’ve been too stupid to understand that’s not my problem now is it.

As for single downgrades, we’ve already established that those can happen with no affect on interest rates. Pay attention shit head. The point is whether or not a country can and SHOULD be subject to further downgrades simply because it has a govt run by stubborn toddlers.

As for Japan, I will have to try to find something about the cultural aspects of the average Japanese investor. I don’t pay much attention to the fixed income markets since I mostly speculate with buying and selling options. But the mere fact of the discrepancy I pointed out above, if you can grasp the significance of that, which you clearly can’t, should be enough to tell you that it is not in any way a representative case.

[deltasigma]

BTW. Apologies to the thread participants other than MH and Antibob. I love trying to explain what I’ve learned and continue to learn every day about the financial system and markets so none of my arrogance is directed at you, but only at the poseurs who pretend to know more than they actually do.

[deltasigma]

Since I was pissed when I made my OP, and tired, and I obviously didn’t do a good job of making my case, let me try again.

This isn’t just about the credit rating. That is a symptom not the diagnosis. Actually, it’s more like the results of an inquest or autopsy since it comes so long after the damage is already done. The issue is much, much broader. This excerpt will give you a flavor.

NEW YORK, July 28 (Reuters) - Another year, another battle over the U.S. budget. It’s hardly what investors need, but it looks like they’re going to get it just the same.

That doesn’t mean it’s time to panic. Last December’s showdown over tax policy, while unpleasant, turned out to be just a minor speed bump for the U.S. stock market, which raced to record highs after Congress struck a last-minute deal on New Year’s Day.

But with investors already nervous about the Federal Reserve’s plan to start scaling back its stimulus program, another fiscal policy standoff could be more disruptive this time around.

The point is that the entire economy, people who have to plan the future of businesses, including the people who make hiring decisions, can’t make those decisions because they don’t know what to expect. As a result, economic activity is stifled. Projects that might have been started aren’t. People that would have been hired aren’t. Money that would have been paid in wages and salaries and then spent to stimulate the economy isn’t. And that money then isn’t there to be invested to stimulate more economic growth.

MH and Antibob – are you getting the idea now?

But aside from that, there is in fact the danger of a real default on US debt. These idiots are actually talking about not raising debt ceiling again even if that means an actual default. Does anyone really think that won’t have any consequences?

And if you think just another downgrade won’t matter, think again.

Treasuries, meanwhile, have sailed through recent budget battles unscathed. When the last debt ceiling showdown spurred Standard & Poor’s to strip the United States of its top AAA rating in 2011, government borrowing costs actually fell.

But Thomas Graff, a portfolio manager at Brown Advisory in Baltimore, which manages $40 billion, said investors “should not take it for granted that the market will always be so forgiving.”

For one thing, the global demand for bonds in general and U.S. Treasuries in particular has waned considerably. Between 2009 and 2012, when markets were reeling from crisis to crisis, global investors poured $1.1 trillion into U.S.-domiciled bond funds, data from fund tracker Lipper shows, by far the biggest inflow for any four-year period back to 1992.

So the bottom line is that this shit matters and it matters big time and if you think otherwise you’re a fucking moron. Sorry to be blunt but that’s a fact.

[China_Guy]

deltasigma, with all due respect, the rating agencies are hardly impartial. And when it comes to sovereign debt, usually they are a day late and a dollar short. Greece Spain and well predictive behavior on any of the PIGS really.

It *can *matter but not guaranteed. And if the planets align on bad news a sovereign ratings downgrade just might be the pebble that starts an avalanche. However, if you think big investors will be taken by surprise and suddenly going to dump trillions of dollars in treasuries, which is what would be needed to have a real effect, then you really don’t get how it works. Based on the rating agencies sovereign track record over say the past 2 decades, they are really good at closing the barn door after the horse has bolted off.

Also, FYI, theoretically no sovereign debt, frankly no debt on the planet, can be rated higher than US treasuries. That is the cornerstone of all ratings.

Puhleese, could you knock off the “uncertainty” BS. Fucking A, news flash for ya, interest rates in the US are going to go up sometime. There, I took away your uncertainty. You’re welcome. Christ, 20 years ago there was uncertainty if rates would go up or down. Now we know they can only go up.

Pretty puhleese, show something, anything, where an actual real life default on US government debt is being considered. Don’t give me any “technical default crapola” but a real honest to god US treasury isn’t going to pay any of it’s debts. Thanks for playing.

[deltasigma]

… never mind premature.

[deltasigma]

@China_Guy

deltasigma, with all due respect, the rating agencies are hardly impartial. And when it comes to sovereign debt, usually they are a day late and a dollar short. Greece Spain and well predictive behavior on any of the PIGS really.

It *can *matter but not guaranteed. And if the planets align on bad news a sovereign ratings downgrade just might be the pebble that starts an avalanche. However, if you think big investors will be taken by surprise and suddenly going to dump trillions of dollars in treasuries, which is what would be needed to have a real effect, then you really don’t get how it works. Based on the rating agencies sovereign track record over say the past 2 decades, they are really good at closing the barn door after the horse has bolted off.

Also, FYI, theoretically no sovereign debt, frankly no debt on the planet, can be rated higher than US treasuries. That is the cornerstone of all ratings.

Puhleese, could you knock off the “uncertainty” BS. Fucking A, news flash for ya, interest rates in the US are going to go up sometime. There, I took away your uncertainty. You’re welcome. Christ, 20 years ago there was uncertainty if rates would go up or down. Now we know they can only go up.

Pretty puhleese, show something, anything, where an actual real life default on US government debt is being considered. Don’t give me any “technical default crapola” but a real honest to god US treasury isn’t going to pay any of it’s debts. Thanks for playing.

How’s this grab you for proof that uncertainty matters.

Simple VAR models indicate the increases in policy uncertainty foreshadow weaker aggregate economic performance.

In terms of “technical” vs. real - It’s real if we don’t pay. Call it “technical” if that makes you feel better. Sure the markets understand that we’re not Greece but if you think that wouldn’t matter, you’re stoned. Read the article I linked to.

As for agencies being biased, they’re only reflecting what the markets already know. As has already been pointed out and as I’ve already stated, it’s an autopsy not a diagnosis.

[China_Guy]

Uncertainly matters get’s filed in the No shit Sherlock category. CAlling out “uncertainty” over interest rates as the big drag preventing the economy from rocking the house is crack smoking smack talk.

value at risk models don’t really do much. It’s not like you can trade VAR’s or anything. If that’s your big gotcha card, I got 2 words for you - don’t interview at goldies.

Jesus H Christ, I was in the markets, worked with rating agencies, traded converts and had a ringside seat as we blew up most sovereigns and clients in Asia during the Asian crisis. When in a hole, stop digging.

[deltasigma]

@China_Guy

Uncertainly matters get’s filed in the No shit Sherlock category. CAlling out “uncertainty” over interest rates as the big drag preventing the economy from rocking the house is crack smoking smack talk.

value at risk models don’t really do much. It’s not like you can trade VAR’s or anything. If that’s your big gotcha card, I got 2 words for you - don’t interview at goldies.

Jesus H Christ, I was in the markets, worked with rating agencies, traded converts and had a ringside seat as we blew up most sovereigns and clients in Asia during the Asian crisis. When in a hole, stop digging.

You moron. You didn’t even look at the paper. VAR is vector autoregressive model. You don’t “trade” those. What a fucking idiot.

And I see you like to contradict yourself. First uncertainty doesn’t matter, now it does. If you misconstrued that to mean only interest rates then you didn’t read what I read or you didn’t understand it. Stop wasting my time.

If you were “in the markets” then you were just another trading monkey mindlessly following his charts. IOW, you know jack shit.

[China_Guy]

At least I know shit from shinola, which you obviously don’t frat boy

[deltasigma]

@China_Guy

At least I know shit from shinola, which you obviously don’t frat boy

Keep telling yourself that. I know exactly your type. You’re the type that bet the ranch on inflation going through the roof and who shorted the market in 2009 and didn’t cover until you got a call from your broker. So, do you actually have any money left there buddy? Hehehe.

[Measure_for_Measure]

@deltasigma

Since I was pissed when I made my OP, and tired, and I obviously didn’t do a good job of making my case, let me try again.

This isn’t just about the credit rating. That is a symptom not the diagnosis. Actually, it’s more like the results of an inquest or autopsy since it comes so long after the damage is already done. The issue is much, much broader.

Yes.

delta- China Guy is ok: methinks you shouldn’t diss him given your imperfect OP. This stuff gets can get tricky.

I was a little dubious about your VAR paper’s policy uncertainty proxies, though admittedly I spent all of 2 minutes looking at it. A better paper might be the one that measured the impact of a technical default that occurred in the late 1970s.

Economic mismanagement by the Republican congress matters. For one thing, when they are creating pointless crises and dramathons, they are not focusing on the problems facing the US. These include global climactic change, crumbling infrastructure and a refusal to apply textbook economics to a rather straightforward aggregate demand shortfall. Massive un and under-employment is the result.

[deltasigma]

I agree with you in principle of course, but I have to respond to posters in kind. I follow the financial markets more closely I’m guessing than at least some of the people who have posted here judging by what I’ve seen and there’s no doubt that what I’ve said is in complete agreement with the general consensus. Give the broad range of opinion you generally find on such matters that’s saying something. Others however do seem to be well informed and appreciate their input.

But when people come in and essentially trash talk what I’ve posted, information I know to be accurate, I have to show that they are clearly misinformed. If they are rude about it, I feel obliged to respond in kind. Being nice never seems to get the point across.

Now if someone acknowledges what I already know to be fact and disputes some of the implications or interpretations, that’s a different matter. But as to the posters I’ve snarked at, I don’t think that’s been the case.

[Martin_Hyde]

@deltasigma

I agree with you in principle of course, but I have to respond to posters in kind. I follow the financial markets more closely I’m guessing than at least some of the people who have posted here judging by what I’ve seen and there’s no doubt that what I’ve said is in complete agreement with the general consensus. Give the broad range of opinion you generally find on such matters that’s saying something. Others however do seem to be well informed and appreciate their input.

But when people come in and essentially trash talk what I’ve posted, information I know to be accurate, I have to show that they are clearly misinformed. If they are rude about it, I feel obliged to respond in kind. Being nice never seems to get the point across.

Now if someone acknowledges what I already know to be fact and disputes some of the implications or interpretations, that’s a different matter. But as to the posters I’ve snarked at, I don’t think that’s been the case.

You’re an idiot–shut up.

[Martin_Hyde]

@deltasigma

BTW. Apologies to the thread participants other than MH and Antibob. I love trying to explain what I’ve learned and continue to learn every day about the financial system and markets so none of my arrogance is directed at you, but only at the poseurs who pretend to know more than they actually do.

You actually don’t know anything. I hope that no one takes your retarded posts here and believes them. What do you do, read marketwatch once a day so now you’re an expert on the markets? You worked at a bank once doing mortgage loans? You’re espousing ideas no one who actually participates in markets believes–namely that there is some impending disaster if the U.S. credit rating gets downgraded again.

What would be an actual impending disaster would be the U.S. not raising the debt ceiling, which is a disaster regardless of what directions credit ratings have moved.

But you know, it struck me after observing you in several threads your MO is to post lots of incorrect stuff, and when called on it you just start insulting people. You’ve not once backed off an incorrect claim of yours. I know the practice on these forums is to argue with people who do that endlessly, while they just keep repeating the same incorrect stuff over and over again. I don’t think that’s a good use of time.

Instead, I’m going to invite you to shut the fuck up. I’ll invite everyone else to not take this guy seriously, he does not know what he’s talking about. He’s like a college kid that read half a chapter on a book about investing a few years ago after a frat party and thinks he’s Warren Buffett now.

Here this guy is disagreeing with Stranger on a Train on science/engineering issues, clearly missing the point Stranger is making, and obviously he walks away thinking he’s the smart guy and Stranger is the idiot.

Here he is doing a mixture of regurgitating basic information about the Fed, but also with some inaccuracies, as well as repeating the well debunked “fear” that the Chinese will just “dump our debt on the open market.” This shows he has the market and intellectual sophistication of the guys pushing Elliott Wave investing or telling you to watch out for Dow 8,000 because it’s coming again next week.

Here he makes the claim that because the NAACP says something, that is de facto proof that they know what they’re talking about legally. Multiple posters in that thread point out to him, with citations, various cases that directly contradict his and the NAACP’s claim. His rebuttal, when asked for cites is to say, “I don’t have to give you cites, because I reject yours [which were just links to case law btw], and if the NAACP says something you have to assume their lawyers know what they are talking about.”

This guy is a moron, waste of space jackass and should be outed as such.

From what I can tell aside from the movie/tv threads he’s posted, this guy, based on the wide range of things he’s randomly talking about appears to just google information about thread topics when he sees them pop up and then he comes in to regurgitate what he’s googled. Sometimes he appears to post useful stuff because of this, but he also appears prone to just post nonsense. Since he has no actual knowledge of his own he can’t really correctly interpret what he’s posting, so when he does post or analyze something incorrectly he pulls this technique of asserting his own brilliance and the stupidity of his opponents.

His behavior in the DOJ/Zimmerman thread where he outright rejected the validity of case law as cites on a legal issue, and refused like a whiny baby to provide cites of his own is reason enough to put this guy in the dustbin of history with the likes of Stoid or to think of him like a mildly amusing clown like elucidator.