Comments on: Will S&P downgrade the US? http://blogs.reuters.com/felix-salmon/2011/04/18/will-sp-downgrade-the-us/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: TFF http://blogs.reuters.com/felix-salmon/2011/04/18/will-sp-downgrade-the-us/comment-page-1/#comment-25889 Mon, 18 Apr 2011 23:28:01 +0000 http://blogs.reuters.com/felix-salmon/?p=7966#comment-25889 Does this cast doubt on those economic studies that are based on the assumption that US debt is a risk-free investment? Even if they monetize the debt, as petertemplar persistently insists they might, you can’t get around inflation risk.

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By: NukerDoggie http://blogs.reuters.com/felix-salmon/2011/04/18/will-sp-downgrade-the-us/comment-page-1/#comment-25886 Mon, 18 Apr 2011 20:31:48 +0000 http://blogs.reuters.com/felix-salmon/?p=7966#comment-25886 Actually, I could see a scenario develop wherein we have another financial crisis somewhat similar to the last one in 2007-2008, with yet another commodities bubble burst like we had in the summer/fall of 2008. Global wealth has been flowing out of Treasuries and the dollar and into “hard assets” like commodities, just like it was leading up to the fall of 2008. The Fed’s QE2 is a big factor here. So now we’ve got this latest commodities bubble. What happens if something occurs to trigger global investor panic again, and there’s a massive rush into very short-term Treasuries for safety? As several posters here have observed, there’s no place else to park your wealth where you can get the depth and liquidity you need. With S&P and perhaps other agencies soon cutting the medium to longterm outlook for the U.S. (especially if it doesn’t get on the path of getting its house in order very soon), who’s going to pile into anything but the shortest-dated Treasuries? So, then what happens when you get the violent movement of massive sums of global wealth out of commodities and back into the Treasuries markets again? And also out of longer-dated Treasuries into the short-dated ones. The whole global order sees terrific stresses and strains, and it’s much weaker than it was in 2008. It places terrific strains on the U.S. Treasury to have an inordinate percentage of investors piled into shorest-dated Treasuries because of the rollover issues. Bottom line: I could see the entire dollar-denominated bond market break down and crash. Massive loss of wealth. Opportunity for China and Friends to establish a new bond order?

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By: willid3 http://blogs.reuters.com/felix-salmon/2011/04/18/will-sp-downgrade-the-us/comment-page-1/#comment-25885 Mon, 18 Apr 2011 20:26:12 +0000 http://blogs.reuters.com/felix-salmon/?p=7966#comment-25885 is S&P really concerned about the deficit or the rush to default by not increasing the debt ceiling? after all as many have noted Japan (there is more than double their national GDP) has a much much higher government debt load and seems to have no trouble getting good interest rates? and considering total private debt (consumers and business) is many magnitudes larger that Federal government debt, why isn’t that a larger concern?

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2011/04/18/will-sp-downgrade-the-us/comment-page-1/#comment-25882 Mon, 18 Apr 2011 19:01:08 +0000 http://blogs.reuters.com/felix-salmon/?p=7966#comment-25882 y2k, how many hundreds of billions of dollars worth of bonds could Berkshire issue, every year? Not enough to absorb all the cash that is not being invested in anything and wants to be kept safe.

The dollar can only be replaced by a currency with similar amounts of liquidity, and since all of those except for China have their own debt issues, that leaves only China to start offering bonds. Do you think they could pull that off?

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By: y2kurtus http://blogs.reuters.com/felix-salmon/2011/04/18/will-sp-downgrade-the-us/comment-page-1/#comment-25881 Mon, 18 Apr 2011 18:08:07 +0000 http://blogs.reuters.com/felix-salmon/?p=7966#comment-25881 “If US Treasury bonds aren’t risk-free, then nothing is risk-free, and the triple-A bedrock on which the S&P ratings apparatus is built crumbles away.”

I think we might see a rise in what I would call super-soverign corporations. I can think of dozens of very large companies that issue debt in more than one currencies. For them it’s a low risk endevor because they produce profits in the currencies they issue in.

Why could a company like Berkshire not offer a “global bond” in gold ounce units or oil barrel units. You invest 100 units at the current spot price for 10 years at 3% interest (also measured in units.) Then you can pick your favorate currency every time a coupon payment is due. You want pounds you get pounds you want euro you get euro you want $$$ then you get $$$ all based on the price of the underlying index.

Soverigns would hate the idea because bonds like that would be so clearly superior and lower risk to bonds issued in one fiat currency… but investors would LOVE them. I’d bet anything that Berkshire could issue for .25 under the US Goverment with terms like that!

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By: DanHess http://blogs.reuters.com/felix-salmon/2011/04/18/will-sp-downgrade-the-us/comment-page-1/#comment-25880 Mon, 18 Apr 2011 17:55:08 +0000 http://blogs.reuters.com/felix-salmon/?p=7966#comment-25880 “This is just politics, where the management of S&P is trying to bully or embarrass the government into reducing the deficit. ”

Har har!

Move it along folks, nothing to see here!

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By: maynardGkeynes http://blogs.reuters.com/felix-salmon/2011/04/18/will-sp-downgrade-the-us/comment-page-1/#comment-25878 Mon, 18 Apr 2011 17:42:49 +0000 http://blogs.reuters.com/felix-salmon/?p=7966#comment-25878 That is Herb Stein, not his moron son. This confusion has propelled the latter’s rise to the top of the idiocracy, and needs to be clarified every time the Stein born with a functioning brain is mentioned.

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By: 123456951 http://blogs.reuters.com/felix-salmon/2011/04/18/will-sp-downgrade-the-us/comment-page-1/#comment-25877 Mon, 18 Apr 2011 17:39:22 +0000 http://blogs.reuters.com/felix-salmon/?p=7966#comment-25877 S&P is only stating what everyone else in the world already senses. Put this together with what emerging economies had to say recently about “big brother” finances and the IMF, and you can see how our government and the Fed are being percieved. Where is our credibility? Sure China should let it’s currency float. But what about us and our humungous debt? Who’s being irresponsibe?

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By: neazs http://blogs.reuters.com/felix-salmon/2011/04/18/will-sp-downgrade-the-us/comment-page-1/#comment-25873 Mon, 18 Apr 2011 16:47:58 +0000 http://blogs.reuters.com/felix-salmon/?p=7966#comment-25873 Had these watchdogs like S&P worked well even to the level of 0.1 on a scale of 10 there would have been no crises like the ones every other conomy is facing today in the first place.
This shows there is most serious need of a credible rating apparatus in today’s world to ward off schockings in future and replace S&Ps like parasites immediately.

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2011/04/18/will-sp-downgrade-the-us/comment-page-1/#comment-25871 Mon, 18 Apr 2011 16:05:36 +0000 http://blogs.reuters.com/felix-salmon/?p=7966#comment-25871 This is just politics, where the management of S&P is trying to bully or embarrass the government into reducing the deficit. Ratings are all relative, so the US needs to be compared to other economies of similar scale. So which ones have no debt problems? Britain? No. The rest of the EU? No. Japan? No. China? Bingo!

In a world where excessive debt is punished by devaluing the underlying currency, the renminbi would appreciate vs. the dollar, and Americans would pay the price for overconsumption. But China refuses to let the market determine the value of the dollar, which they hold so many of, so there are little or no penalties for our monstrous deficits. A downgrade by S&P would expose their irrelevance, which may be a good thing, for as 300sion pointed out, they screwed us all with their worthless bond ratings.

When China floats the renminbi, we can be worried, but only for a short time, as the net result will be factories re-opening in the US. Which is why they are so reluctant to accurately price the dollar.

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