
Just the Facts: S&P's $2 Trillion Mistake - bryanlarsen
http://www.treasury.gov/connect/blog/Pages/Just-the-Facts-SPs-2-Trillion-Mistake.aspx
======
fauigerzigerk
S&P's mistake is certainly incredibly embarrassing but apart from that I'm
asking myself a much more fundamental question:

Why is the ability to pay considered at all when it comes to the US? A country
that is indebted in its own currency can theoretically never default on its
nominal obligations. Not due to inability to pay at least. I don't think that
credit rating agencies even try to pass judgement on the likelyhood of
governments inflating their debt away, so based on ability to pay the US
credit rating should be fixed at AAA.

On the other hand, S&P clearly says that what they judge is the ability AND
the willingness to pay. Considering the number of congressmen and women who
recently voted in favor of default, the willingness to pay has to be in great
doubt. In that light, I think, the US does not deserve a AAA or even a AA. B
seems more appropriate.

~~~
orijing
"We can pay back our debt since it's denominated in dollars" is a meme thrown
around online blogs, but it is misguided. If the way the debt is paid back is
through currency devaluation, it's safe to say that the investors were not
truly paid back--i.e. there was a loss of principal measured in purchasing
power.

So while it's true that the US can always pay back the full dollar amount of
how much it owes, it's less true that it'll pay back the total "purchasing
power" that the bondholder gave up to buy US bonds. Therefore, there's
additional risk even if you will get your money back.

However, in that light all dollar-denominated debts should be downgraded for
the same reason that US treasury bonds are--for the additional currency risk
should the government choose to "default" by devaluation.

~~~
fauigerzigerk
That's exactly what I said. The keyword is "nominal obligations".

~~~
orijing
I was answering "Why is the ability to pay considered at all when it comes to
the US?"

Perhaps I misunderstood your comment, but it read like "it doesn't matter
because we can pay all debts."

~~~
fauigerzigerk
The government can always pay its nominal debt with interest. I didn't say
they were not going to inflate the debt away or that this would be OK. But S&P
did not make that assumption in its rating. S&P assumes a 2% inflation rate.

~~~
gojomo
Whether S&P says it or not, then, we should consider part of the 'default'
risk being that USGov intentionally, strategically breaks those stated
inflation assumptions.

~~~
sethg
If there is a risk that the US will significantly inflate the currency, then
that risk should be reflected in the ratings for all dollar-denominated bonds,
not just Treasuries. But there are still AAA-rated corporate bonds. Heck, S&P
still rates the bonds of 13 _states_ as AAA, which makes no sense to me.

------
akamaka
_Independent of this error, there is no justifiable rationale for downgrading
the debt of the United States... The magnitude of this mistake – and the haste
with which S &P changed its principal rationale for action when presented with
this error – raise fundamental questions about the credibility and integrity
of S&P’s ratings action._

The conclusion blog post sounds an awful lot like an opinion, considering the
title is "Just the Facts".

~~~
Goladus
Yes. Claiming it's "Just the Facts" is technically incorrect. Considering the
source, though, it's a lot less misleading than it could be.

------
_delirium
It's odd that there's so much emphasis being placed on short-to-medium-term
numbers when it comes to bond ratings in the first place. Especially at
current interest rates, it has relatively minor implications for debt
sustainability: $4 trillion in debt, at real interest rates hovering just
above 1%, is maybe $50b a year extra interest in real terms. Surely the
federal government's solvency doesn't turn on questions of +/- $50b a year, so
the bond-serviceability picture is pretty similar whether you move things $4t
one way or another.

He's a bit of a partisan, but in this case I think Paul Krugman's analysis is
basically correct, that real questions of debt sustainability aren't +/-
$4trillion in the next 10 years, but longer-term insufficiently funded
liabilities in healthcare and pensions:
[http://krugman.blogs.nytimes.com/2011/08/06/the-
arithmetic-o...](http://krugman.blogs.nytimes.com/2011/08/06/the-arithmetic-
of-near-term-deficits-and-debt/)

~~~
hugh3
_He's a bit of a partisan, but in this case I think Krugman's analysis is
basically correct, that real questions of debt sustainability aren't +/-
$4trillion in the next 10 years, but longer-term insufficiently funded
liabilities in healthcare and pensions:_

Krugman is a Democrat partisan, but complaining about unfunded liabilities in
healthcare and pensions is exactly what the Republicans are doing too. If
Krugman and the Republicans agree that it's a big problem then... damn, it
must be a _big_ problem.

~~~
shareme
but they are again refusing to face facts in front of them..its not unfunded
health care liabilities..its UNFUNDED LIABILITIES in FED Budget that means
anytime a law is passed without the means to pay for it..for example going to
war in Iraq, etc without raising taxes to pay for it..

Another example taking over the Ed Loans from the private sector and than not
raising some type of tax to pay for it.

It should be that in order to pass a bill in Congress that a pair of bills one
to enact the law and one to pay for it. That is the budget reform that we
need.

~~~
hugh3
My preferred solution is this:

1\. Every year, the US Government figures out how much money it wants to
spend.

2\. Then, it figures out what the (flat) tax rate would need to be in order to
rustle up that much money.

3\. Then, it sets the tax rate and sends everyone a bill.

You could do this a year in advance just to make sure everybody knew how much
they'd be getting taxed. But the important thing is that _everybody_ in the
country needs to see the immediate hip-pocket consequences when the government
spends more money.

Still doesn't help with things like SS and Medicare, though, which cost a
little bit of money in the year they're passed and vast sums of money several
decades into the future.

~~~
mkr-hn
Then a financial crisis hits and the government finds itself unable to react
to the needs of a paralyzed market. It's a nice idea in principle. But any
time something like this or a balanced budget law/rule comes up in congress,
it never has a provision for reacting to emergencies.

~~~
CamperBob
The problem with that is, as we've seen (and are seeing), it's trivial to
manufacture an 'emergency' or a 'crisis' on demand, whenever it's convenient.

~~~
mkr-hn
A government that can react to real crises while being vulnerable to fake ones
is the best option I've seen so far. People are very creative when it comes to
working around problems. Some people see data processing efficiency as a
problem to solve. Others see finding ways to manipulate government for profit
as one.

------
snomad
S&P's response to the supposed Mistake:

Standard & Poor’s Clarifies Assumption Used On Discretionary Spending Growth

New York, Aug. 6, 2011. In response to questions, Standard & Poor’s today said
that the ratings decision to lower the long-term rating to AA+ from AAA was
not affected by the change of assumptions regarding the pace of discretionary
spending growth. In the near term horizon to 2015, the U.S. net general
government debt is projected to be $14.5 trillion (79% of 2015 GDP) versus
$14.7 trillion (81% of 2015 GDP) with the initial assumption.

We used the Alternative Fiscal Scenario of the nonpartisan Congressional
Budget Office (CBO), which includes an assumption that government
discretionary appropriations will grow at the same rate as nominal GDP. In
further discussions between Standard & Poor’s and Treasury, we determined that
the CBO’s Baseline Scenario, which assumes discretionary appropriations grow
at a lower rate, would be more consistent with CBO assessment of the savings
set out by the Budget Control Act of 2011.

Our ratings are determined primarily using a 3-5 year time horizon.

In the near term horizon, by 2015, the U.S. net general government debt with
the new assumptions were projected to be $14.5 trillion (79% of 2015 GDP)
versus $14.7 trillion (81% of 2015 GDP) with the initial assumption – a
difference of $345 billion.

In taking a longer term horizon of 10 years, the U.S. net general government
debt level with the current assumptions would be $20.1 trillion (85% of 2021
GDP). With the original assumptions, the debt level was projected to be $22.1
trillion (93% of 2021 GDP).

The primary focus remained on the current level of debt, the trajectory of
debt as a share of the economy, and the lack of apparent willingness of
elected officials as a group to deal with the U.S. medium term fiscal outlook.
None of these key factors was meaningfully affected by the assumption
revisions to the assumed growth of discretionary outlays and thus had no
impact on the rating decision.

------
mindstab
They don't see publicly debating for a month about defaulting on a loan for
the first time and coming close to being within a day of doing it as anything
that could possibly shake investor confidence? Isn't the AAA rating for ultra
rock solid, and that dragged on public debate gives off the impression of
anything but ultra rock solidness.

~~~
jancona
The US did not come within one day of defaulting. It came within a day of
hitting the debt ceiling, which is a very different thing. Despite the way it
was portrayed, the government could have limped along for days our weeks
without defaulting.

(I'm _not_ saying that would have been a good thing--just that the idea of
August 2nd as the day default would have occurred is incorrect.)

~~~
j_baker
We hit the debt ceiling back in May. We've managed to stay afloat due to some
accounting tricks at the Treasury.

[http://www.washingtontimes.com/news/2011/may/16/federal-
gove...](http://www.washingtontimes.com/news/2011/may/16/federal-government-
hits-14t-debt-limit/)

------
bahman2000
I continue to be amazed at how much credibility we seem to give this (and
other) rating agency after they rated subprime-backed derivatives as safe,
rated AIG & Lehman as safe. Is our collective short-term memory non-existent?

~~~
j_baker
A broken clock is right twice a day. I hate the ratings agencies, but that
doesn't make the downgrade _wrong_.

~~~
flurie
A track record is important in determining credibility. Their long term
(decades) track record may be fine, but their short term (past few years)
track record is suspect. This may be legitimate and above board, but it is
difficult, and with good reason, to believe that this is so.

------
hugh3
I hate it when students whine about the _unfairness_ of their lousy grades and
how they really deserved a higher one.

It's even worse when the Treasury Department does it.

~~~
nick007
This isn't whining - the Treasury isn't simply complaining about the
downgrade. They are pointing out a fact that the original justification for
the downgrade was proved to be wrong, yet after realizing this S&P maintained
the same conclusion based on a different set of justifications.

This would be like a student pointing out that the teacher incorrectly graded
his paper; and after acknowledging that fact, the teacher maintains the same
grade.

~~~
btilly
It is worse than that.

In the original guidance that S&P gave, their target level of deficits for the
USA was exactly what the real plan, without their mistake, was. So the
government actually is achieving exactly what S&P wanted them to achieve.

For better or for worse I believe that the reason for S&P's downgrade is that
they gave guidance of $4 trillion, they didn't see a $4 trillion deal, and
they would be embarrassed if they failed to downgrade given how publicly they
said that they would if they didn't see $4 trillion.

------
jpdoctor
This was my favorite part: "Independent of this error, there is no justifiable
rationale for downgrading the debt of the United States."

Apparently having a fraction of Representatives (you know, reps from that body
responsible for initiating all spending bills) saying that default might be a
good thing is not a "justifiable rationale".

------
scottkrager
Yikes, I'd hate to be in the accounting department at S&P the next few years.
Can you say, "random IRS audit". Crazy to see the feds calling out a company
like this in a blog post. Crazy times.

~~~
16s
They deserve to be called out. This isn't their only _mistake_. These clowns
are the same bunch who kept giving AAA scores to complex mortgage-backed
securities during the housing boom.

[http://www.bloomberg.com/news/2011-04-13/moody-s-s-p-
caved-t...](http://www.bloomberg.com/news/2011-04-13/moody-s-s-p-caved-to-
mortgage-pressure-by-goldman-ubs-levin-report-says.html)

~~~
mgkimsal
Well, they were raked over the coals (though more should have been done) when
they were too lenient. Now they're being too strict, and are still getting
crap for it.

I'm not a big fan, but from a 'credit worthiness' standpoint, I'm not
surprised the US was downgraded. With the sorts of people running the show, we
demonstrated that we were cavalier enough to _nearly_ get to a point where we
couldn't pay our bills. And the rhetoric coming out of the Congress was
serious enough to contribute to this.

Perhaps this is an oversimplification, but if I kept broadcasting to the all
my creditors as well as experien, transunion and equifax that I might not pay
my debts, eventually that might factor in to my credit score. If I kept
announcing that I might not pay, and my credit score was lowered, I shouldn't
be surprised.

~~~
sixtofour
"With the sorts of people running the show, we demonstrated that we were
cavalier enough to nearly get to a point where we couldn't pay our bills."

s/couldn't/wouldn't

Our ability to pay our bills at present was never in question. The issue was
whether we would merely _decide_ not to pay. That induces a certain queasiness
in the upper deck cabins on the ship of state.

~~~
mgkimsal
My understanding is that we wouldn't be able to pay 100% of all our
obligations pretty soon after that. Yes, we _could_ pay bond holders, at the
expense of other obligations. I may have been misinformed, but that was my
takeaway.

------
katovatzschyn
_From Naomi Klein's The Shock Doctrine:_

In February 1993, Canada was in the midst of financial catastrophe, or so one
would have concluded by reading the newspapers and watching TV. “Debt Crisis
Looms,” screamed a banner front-page headline in the national newspaper, the
Globe and Mail. A major national television special reported that “economists
are predicting that sometime in the next year, maybe two years, the deputy
minister of finance is going to walk into cabinet and announce that Canada’s
credit has run out…. Our lives will change dramatically.

The phrase “debt wall” suddenly entered the vocabulary. What it meant was
that, although life seemed comfortable and peaceful now, Canada was spending
so far beyond its means that, very soon, powerful Wall Street firms like
Moody’s and Standard and Poor’s would downgrade our national credit rating
from its perfect Triple A status to something much lower. When that happened,
hypermobile investors, liberated by the new rules of globalisation and free
trade, would simply pull their money from Canada and take it somewhere safer.
The only solution, we were told, was to radically cut spending on such
programs as unemployment insurance and health care. Sure enough, the governing
Liberal Party did just that, despite having just been elected on a platform of
job creation.

Two years after the deficit hysteria peaked, the investigative journalist
Linda McQuaig definitively exposed that a sense of crisis had been carefully
stoked and manipulated by a handful of think tanks funded by the largest banks
and corporations in Canada, particularly the C. D. Howe Institute and the
Fraser Institute (which Milton Friedman had always actively and strongly
supported). Canada did have a deficit problem, but it wasn’t caused by
spending on unemployment insurance and other social programs. According to
Statistics Canada, it was caused by high interest rates, which exploded the
worth of the debt much as the Volcker Shock had ballooned the developing
world’s debt in the eighties. McQuaig went to Moody’s Wall Street head office
and spoke with Vincent Truglia, the senior analyst in charge of issuing
Canada’s credit rating. He told her something remarkable: that he had come
under constant pressure from Canadian corporate executives and bankers to
issue damning reports about the country’s finances, something he refused to do
because he considered Canada an excellent, stable investment. “It’s the only
country that I handle where, usually, nationals from that country want the
country downgraded even more – on a regular basis. They think it’s rated too
highly.” He said he was used to getting calls from country representatives
telling him he had issued too low a rating. “But Canadians usually, if
anything, disparage their country far more than foreigners do.”

That’s because, for the Canadian financial community, the “deficit crisis” was
a critical weapon in a pitched political battle. At the time Truglia was
getting those strange calls, a major campaign was afoot to push the government
to lower taxes by cutting spending on social programs such as health and
education. Since these programs are supported by an overwhelming majority of
Canadians, the only way the cuts could be justified was if the alternative was
national economic collapse – a full blown crisis. The fact that Moody’s kept
giving Canada the highest possible bond rating – the equivalent of an A++ –
was making it extremely difficult to maintain the apocalyptic mood.

Investors, meanwhile, were getting confused by the mixed messages. Moody’s was
upbeat about Canada, but the Canadian press constantly presented the national
finances as catastrophic. Truglia got so fed up with the politicised
statistics coming out of Canada, which he felt were calling his own research
into question, that he took the extraordinary step of issuing a “special
commentary” clarifying that Canada’s spending was “not out of control,” and he
even aimed some veiled shots at the dodgy math practiced by right-wing think
tanks. “Several recently published reports have grossly exaggerated Canada’s
fiscal debt position. Some of them have double counted numbers, while others
have made inappropriate international comparisons… These inaccurate
measurements may have played a role in exaggerated evaluations of the severity
of Canada’s debt problems.” With Moody’s special report, word was out that
there was no looming “debt wall” – and Canada’s business community was not
pleased. Truglia says that when he put out the commentary, “one Canadian… from
a very large financial institution in Canada called me up on the telephone
screaming at me, literally screaming at me. That was unique.”

By the time Canadians learned that the “deficit crisis” had been grossly
manipulated by the corporate-funded think tanks, it hardly mattered – the
budget cuts had already been made and locked in. As a direct result, social
programs for the country’s unemployed were radically eroded and have never
recovered, despite many subsequent surplus budgets. The crisis strategy was
used again and again in this period. In September 1995, a video was leaked to
the Canadian press of John Snobelen, Ontario’s minister of education, telling
a closed-door meeting of civil servants that before cuts to education and
other unpopular reforms could be announced, a climate of panic needed to be
created by leaking information that painted a more dire picture than he “would
be inclined to talk about”. He called it “creating a useful crisis."

[http://www.metafilter.com/106249/US-Credit-Rating-
Downgrade-...](http://www.metafilter.com/106249/US-Credit-Rating-Downgrade-
Expected-This-Weekend#3855391)

~~~
Bo102010
Yikes. I refer you to Tyler Cowen's review of Klein:
<http://www.nysun.com/arts/shock-jock/63867/>

Some highlights: "Ms. Klein's rhetoric is ridiculous. For instance, she
attaches import to the fact that the word 'tank' appears in the label 'think
tank.'"

"What the reader will find is a series of fabricated claims, such as the
suggestion that Margaret Thatcher created the Falkland Islands crisis to crush
the unions."

"If nothing else, Ms. Klein's book provides an interesting litmus test as to
who is willing to condemn its shoddy reasoning."

~~~
sien
Klein is pretty funny.

Have a look at The Economist's blog that did a round up of reviews of the
Shock Doctrine:

[http://www.economist.com/blogs/freeexchange/2007/10/naomi_kl...](http://www.economist.com/blogs/freeexchange/2007/10/naomi_klein_smackdown_roundup)

I remember reading 'No Logo' and wondering why on earth a book about how 'teh
evil capitalists' exploit people would pick MS an example of an exploitative
company. MS, afterall, has made thousands of millionaires out its employees.
Then she goes on further to cite South Korea as an example of how terrible
capitalism is because low skill production is moving elsewhere not realising
that South Korea is one of the countries you do not mention if you want to
talk about how capitalism is evil as it is a stunning success of wealth
increase.

The Economist's own review of her earlier work that states:

"Ms Klein's harshest critics must allow that, for an angry adolescent, she
writes rather well. It takes journalistic skill of a high order to write page
after page of engaging blather, so totally devoid of substance. What a pity
she has turned her talents as a writer to a cause that can only harm the
people she claims to care most about. But perhaps it is just a phase."

is probably the sharpest criticism of all.

------
DanielBMarkham
I understand that government departments are led by political appointees.
There's a very good reason for it. When we elect somebody as president we
expect them to make an imprint on the rest of the federal government. So I'm
cool with Treasury running it's own PR game and responding to other news
items.

What I'm confused about is why the Treasury Department feels a need to get
into a pissing contest with S&P. Nobody likes the ratings agencies, so I guess
that makes them an easy target? And the U.S. will just print up more money, so
it's not like the debt won't be paid -- the currency will just be trash. So
there's definitely a bit of made-up drama here. But even with a math error and
the flimsiness of connections to this being germane for Treasury, the overall
news is still bad and it's not like somehow that makes the overall U.S.
position more tenable. Instead it just looks like a lot of blame-storming --
finding the latest organization or person to point a finger at. In other
words, it seems to continue drawing attention to a mess I wouldn't want any
part of if I were in Treasury.

So it's not interesting that S&P made an error, or that the debt ceiling
debate was so protracted. What's interesting to me is this political strategy
of deflection. Can it go on forever? Isn't there some limit, some place --
perhaps if the market tanks another 5 percent next week or an election goes
against the party in power -- where you just say "Maybe we need to do our job
more and worry about blame a bit less?"

Regardless of the "facts" of the S&P decision, I just can't see that this
communications strategy -- as a political tool -- is going to keep paying
dividends. This is just like the "factual" chart the White House put out that
showed debt as as a function of policies approved by which president -- true
but completely pointless except as a tool to deflect blame. Every time there's
bad news there's a follow-up story about how it's somebody else's fault. It
might work a few times, but it can't keep working. Can it?

~~~
antidaily
Buffet said if there was a AAAA rating, he would give it to the US. The S&P
downgrade is bullshit and everyone knows it. So who cares if the Treasury
responded negatively?

------
j_baker
I suppose this is a good bit of posturing, but it seems disingenuous. The
White House and Treasury should know better than anyone else how broken our
political system is.

~~~
thomasgerbe
Given their track record, that's perhaps giving them more credit than I think
they deserve.

~~~
mkr-hn
This comes off as mindless sniping without any support for the point. It's a
non-contribution.

------
dforeman
The treasury's argument is fatally flawed.

"The baseline in which discretionary spending grows with nominal GDP is
substantially higher because CBO assumes that nominal GDP grows by just under
5 percent a year on average, while inflation is around 2.5 percent a year on
average."

GDP is not growing by nearly 5 percent a year and should not be projected to
grow at that pace. Real GDP growth is significantly smaller. Additionally,
with our monetary policy (QE 1,2,..,x), inflation is higher than 2.5%. The
treasury's math is fictitious.

------
pohl
The claim about S&P changing their justification does not ring true. Their
press release on Friday specifically mentioned the recent brinkmanship as a
core concern.

~~~
jancona
Presumably the press release was issued after the write was pointed out to
them. They warned Treasury in advance about the downgrade.

------
nhebb
According to the CBO last week's budget agreement cuts $2.1-2.4T in spending
[1]. S&P's guidance was that we cut $4T. So either the CBO is off as well, or
this typical Washington budgetary spin.

[1] <http://cbo.gov/doc.cfm?index=12357>

~~~
btilly
S&P's guidance was based on an analysis that made the $2.1T mistake. So $2T+
in cuts plus $2.1T error puts us exactly where we would have been if they were
originally right and then we cut $4T.

~~~
OstiaAntica
But we didn't cut that, the deal only cut about a trillion and kicked the
other cuts to a super committee.

~~~
btilly
We did cut that. Where the cuts will come is not yet decided, but that they
will come has been finalized.

------
Bungholio
Bullet, meet foot. Given that this downgrade was triggered entirely by the
poor behavior of U.S. politicians, how can it be in the U.S. interest for the
Treasury to come across as whiney and paranoid? If the treasury had also
mentioned the perfectly reasonable reasons for a downgrade there may be some
balance, but to talk of S&P "making political decisions" puts them in exactly
the same bracket as the poorly behaving politicians! Would you do business
with this lot?!

~~~
watchandwait
The downgrade was triggered because America is borrowing 40 cents of every
dollar of spending, for the third year in a row, with no sign of stopping.

------
dendory
The US debt increases by billions every day, the entire economy is in the
toilet, but the main thing the Treasury is concerned is finding holes in S&P's
report.

------
dpatru
Peter Schiff (1) points out that the downgrade reflects S&P's doubt that the
US will pay its debts _without_ devaluing its currency. Does any reasonable
person believe that?

1- <http://www.youtube.com/user/SchiffReport#p/a/u/0/SgNLTb58K_Y>

------
crocowhile
S&P said 2 trillions is irrelevant anyway given that their error margins on
estimates was +/- 10trillions

[http://www.zerohedge.com/news/sp-explains-why-2-trillion-
err...](http://www.zerohedge.com/news/sp-explains-why-2-trillion-error-
irrelevant)

------
losvedir
"S&P has said their decision to downgrade the U.S. was based in part on the
fact that the Budget Control Act, which will reduce projected deficits by more
than $2 trillion over the next 10 years, fell short of their $4 trillion
expectation for deficit reduction."

This confuses me. I'd always understood "deficit" as the amount the government
spends more than it takes in, in a given year, and "debt" as the cumulative
deficit, i.e., total money owed.

In this case, it seems like they're using "deficit" to mean total debt? Or is
the US really increasing our debt by more than $4 trillion a year, and this is
a plan to overspend by less?

~~~
nextparadigms
First of all the $4 trillion was over 10 years, not 1 year. Second, as far as
I know, they haven't actually done any spending cuts - just cuts from the
"spending increase" they were planning.

And USA may "plan" $4 trillion dollar less spending, but that doesn't mean
they will actually do it. Right now the deficit keeps rising, and fast. It's
supposed to go down, not up.

------
OstiaAntica
This is crazy, Treasury is shooting the messenger and damaging their own
credibility with this line of attack.

Out-year budgeting is very complex, and there are a lot of bullshit
assumptions about various "promised" spending cuts and tax increases. By
jumping all over S&P for a mistake that has nothing to do with the massive,
ongoing deficits this year and next, Treasury shows it is in a strange state
of denial.

It is past time for Sec. Geithner to resign.

------
jongreenlee
Predictions are trash in these arenas, regardless of the
agency/branch/corporation/blog making them.

Just one data point, but there's some humor to be gained from it:
[http://www.zerohedge.com/news/speaking-credibility-here-
cbos...](http://www.zerohedge.com/news/speaking-credibility-here-
cbos-2001-forecast-which-predicted-negative-25-trillion-net-debt-2011)

------
dae2
So the mystery trader who bet $1 billion that the US would default or lose
their credit rating will get $10 billion?

[http://etfdailynews.com/2011/07/25/investors-
the-1-billion-a...](http://etfdailynews.com/2011/07/25/investors-
the-1-billion-armageddon-trade-placed-against-the-united-states/)

------
clbrook
Maybe it was downgraded due to this trade made two weeks before:
[http://etfdailynews.com/2011/07/25/investors-
the-1-billion-a...](http://etfdailynews.com/2011/07/25/investors-
the-1-billion-armageddon-trade-placed-against-the-united-states/)

------
Iv
I still question a scale where it is possible to get the highest note while
have 70+% of the GDP in debts and that this proportion is raising.

A country who would reduce its debts should in theory be a better bet but this
scale does not allow for that.

------
MrKurtHaeusler
So what was the actual math error? If it was mentioned in the article, I
missed it.

------
algoshift
As long as our political system continues to be run on professional
politicians who pander to their base in order to keep their jobs we will never
fix anything.

Anyone who runs a household, a business, or both, clearly understands that
sometimes you have to make decision that are painful in order to survive and
grow.

Our elected officials know that the masses would boot them if they make the
right decisions for the nation. Our political system isn't about making the
right decisions for the NATION, they are about politicians making the right
decisions for POLITICIANS and POLITICAL parties.

Imagine this if you will: In the recent budget debates politicians actually
expressed concern about what they did in view of next year's elections.
Really? What does that tell you?

Fix that problem and our country will flourish. Do not fix it and you will
continue to enjoy a front seat to the spectacle that is the destruction of the
US from the inside.

Whether you lean liberal or conservative, the truth is that if we don't change
you can kiss all you hold dear goodbye because we are only headed in one
direction...an it ain't up. Your politicians are too busy trying to get re-
elected to actually do what they are supposed to be doing.

If you started over, blank slate, how would you structure government and
taxation so that they would produce the right results for the country?

Some key questions apply here:

1- What is the role of government? 2- How much of our lives should government
control? 3- What is the purpose of taxation? 4- Should this be a country where
the government protects people and companies from failure? 5- If charities and
religious organizations operate tax free, shouldn't they be tasked with
helping those in need rather than doing it through government programs? 6- The
world is complicated. Shouldn't those who aspire to hold office (at various
levels) demonstrate competency in the required fields of study much like
anyone else applying for a job? 7- How can we stop voting because we like
someone, or they speak well, or they look good on TV? All of which are far
from qualifying anyone to hold office.

Of course, there are dozens of questions one could ask on this subject.

~~~
redthrowaway
Please don't SHOUT; use _apostrophes_ for emphasis.

~~~
algoshift
Oh, please...

~~~
redthrowaway
>Please don't use uppercase for emphasis. If you want to emphasize a word or
phrase, put _asterisks_ around it and it will get italicized.

<http://ycombinator.com/newsguidelines.html>

EDIT: Grandparent should read "use _asterisks_ for empahsis". Sorry for the
brainfart.

~~~
algoshift
So...rather than focus on the substance of the post and say something
intelligent about a serious subject matter you choose to critique style.

What if I actually wanted to SHOUT?

And, on top of that, you down-vote me for style without knowing my intent
rather than on the substance of the post, which is what the voting is supposed
to be about.

Have a good one pal.

------
pbreit
I found the post very poorly written. Is this the best Treasury could do to
explain the situation?

------
Hisoka
Are there standards that govern exactly what constitutes an AAA vs an AA? If
so, who makes those standards? S&P? A third party that oversees all these
organizations? If the standards are vague, then it's all subject to
interpretation. One person saying it's AA might be the same as another saying
it's AAA. S&P isn't giving a perfect rating to the USA... because the USA debt
situation isn't perfect. I mean, we judge human beings the same way - noone's
perfect. Why should we be any different towards the USA? Just because it
supports democracy, has an emotional national anthem, and has a rich history?
NO.

------
nonameanon
Standard and Poors are Traitors
<http://standardandpooraretraitors.tumblr.com/>

------
toddh
Mistake or deliberate market manipulation?

~~~
hugh3
Uhh, neither. The Treasury claims it was a "mistake", but personally I can't
see how anyone could possibly still consider US bonds to have the highest
possible rating.

However, if for some reason you _did_ think that, then Hanlon's Razor would
apply.

~~~
_delirium
Since the U.S. bonds are all denominated in the same money that it controls,
and the federal government has huge assets and potential revenue streams, I'd
put a risk of default quite low; low enough to get an AAA, anyway.

The federal government pretty much _can't_ default unless it actively chooses
to, given the huge number of options for servicing debt at its disposal
(cutting spending elsewhere, raising taxes, printing money, selling land). So
it's almost entirely a political question of how high you think the chances
are that the government will choose to default rather than use one of the
other options. I would rate that pretty low. But it's not really an actuarial
question either way; it's a guess about policy.

~~~
SoftwareMaven
But that is exactly why they downgraded us. Given everything you listed, we
still were within days of default, thanks to how paralyzed the political
process has become in Washington.

~~~
jonknee
We were within days of the debt ceiling, not of default. Plenty of things
could have been shuffled around to meet all debt payments (including some
politically useful ones like stop sending SS checks, don't pay the troops,
etc).

~~~
nextparadigms
Doesn't the inability to pay even _some_ of your debts, mean you're in
default?

~~~
_delirium
It depends on what you mean by "debts"; you're only in default from the
finance industry's perspective if you fail to service bonds/loans/etc., not if
you fail to make other payments you've promised. For example, if IBM stopped
paying its employees' salaries, or stiffed its suppliers, but continued
servicing its bonds, it wouldn't be in default. S&P is specifically rating the
chance of a default on bonds.

