

Moody’s: Why the U.S. Is Still AAA - ekm2
http://economix.blogs.nytimes.com/2011/08/08/moodys-why-the-u-s-is-still-aaa/

======
tybris
Both S&P and Moody's make good points, but have a different assessment of the
uncertainty. Compared to other nations, The U.S. has a surprisingly healthy
budget. Cut out the bush tax cuts, end the wars, stabilize health care
spending, and you could create a surplus in no time. Few other countries have
that luxury. However, it has not only become questionable whether Washington
will be able to make the necessary changes in the foreseeable future, the
corruption that underlies this inability is very hard to get rid of and may
cripple the government even further.

I think these two different ratings appropriately reflect the uncertainty of
the situation.

~~~
hugh3
_However, it has not only become questionable whether Washington will be able
to make the necessary changes in the foreseeable future, the corruption that
underlies this inability is very hard to get rid of and may cripple the
government even further._

The issue in the US is that there is a genuine ideological split between the
two parties about _what_ the US government should look like. The Democrats
want a big government, which takes in a lot of taxes and provides a lot of
services to everybody. The Republicans want a small government, which takes in
minimalist taxes and provides minimalist services. (I'm not interested in
debating the relative merits of these two ideologies today.) And this isn't
just the parties' ideologues, either -- the same ideological split genuinely
exists in the US public (contrast to many other countries where the "big
government" types seem to have largely won the argument).

Either party could easily balance the budget on its own, given unlimited
power. However, because of the way the US political system just _happens_ to
work, it's very hard to do anything without getting at least some of the other
guys on board.

The Republicans have for many years had a "starve the beast" strategy,
figuring that if you keep on cutting taxes then eventually the Democrats will
have to agree to cut spending as well. In recent years the Democrats have
invented the opposite "gorge the beast" strategy, in which you figure that if
you keep on increasing spending then eventually you'll be able to pressure the
Republicans into agreeing to tax increases. And the poor beast being starved
at one and and gorged at the other starts to... wait, no, this analogy is
breaking down.

What's the solution? There really isn't one. The ideological split in the
American public is real and it isn't going away any time soon, and folks need
to stop proposing "solutions" which basically just come down to "all we need
is for the other side to come over and agree with us and it'll all be rosy."
That's not gonna happen.

But perhaps the first step is to acknowledge that this ideological split is
genuine, and real, and does _actually_ reflect the ideological split within
the US population. Perhaps we can compromise, but first we have to acknowledge
precisely what it is we're compromising about.

edit: Wow, I can't believe this got modded down. I guess the true believers in
the "No really, it's the _other_ guys' fault" die hard.

~~~
jbooth
Can you find me a recording of any Democratic officeholder saying they're "for
Big Government"? I don't think even Bernie Sanders is on the record with
something like that. Fox News saying what democrats think is not what
democrats think.

Which Democratic spending initiatives are contributing to the current deficit?
The Democratic war in Iraq, or the Democratic Homeland Security Dept? The
Democratic Medicare Part D? You can argue the stimulus but that spending was
all temporary and is gone by next year. The healthcare bill _reduced_ gov't
healthcare spending (and the tea party ran against it on a obama-is-taking-
away-your-medicare scare campaign, I remember the attack ads, irony is not
dead).

1999 wasn't that long ago. We had a surplus. The ideological split is mostly
the result of opportunism by Tea Party commentators/legislators and the
complete illegitimacy of any Democratic president in the eyes of about 50% of
Republicans. Democrats will bend over backwards to not be perceived as
ideological, as we saw last week.

~~~
anamax
> Which Democratic spending initiatives are contributing to the current
> deficit? The Democratic war in Iraq, or the Democratic Homeland Security
> Dept? The Democratic Medicare Part D?

With all of those repub approved initiatives, the last deficit under a repub
congress was $160B/year and the trend was downwards.

The deficit jumped to $460B when the Dems took Congress (and Bush was still
president).

Speaking of Medicare Part D, care to name three congressional Dems who
objected to it on the basis that it cost too much? It's easy to find those who
objected because it cover more, that is, cost more.

And, wrt Homeland Security, feel free to identify Dems who want to spend less
on it. The vote on unionization will help you identify those who wanted to
spend more.

> You can argue the stimulus but that spending was all temporary and is gone
> by next year.

Obama and the CBO disagree. They both project >$1T/year deficits for the
forseeable future. (They disagree on how much over $1T.)

> The healthcare bill reduced gov't healthcare spending

Umm, no. The claim was the overall cost of healthcare would go down, but that
govt spending would go up, being paid for by additional taxes and $500B in
medicare "savings". (The scoring "worked" because the taxes started before the
benefits.)

The medicare "savings" consists of paying doctors less, the "doc fix". That's
been on the plate several times, but each time Congress has pulled back
because doctors have said that they won't accept medicare patients if they're
paid less.

> The ideological split is mostly the result ... and the complete illegitimacy
> of any Democratic president in the eyes of about 50% of Republicans.

Ah yes, no Dems ever questioned BushMcChimpHitler's legitimacy or were at all
ideological about him.

~~~
jbooth
This kind of silly tribalism is the exact reason that nobody can get anything
done. You're now saying ignore the votes, pay attention to how they talk about
the votes? A bunch of points about actual actions, and you're so invested in
being a Republican that you change the subject to how they talked about the
actions?

Are you sure you're not being played for a sucker?

Yes, Democrats were more offended by the gross inefficiency of Medicare Part D
than by the general idea of Medicare as a program. They voted against Part D.
Republicans voted for it.

Having a projected deficit next year is hilariously orthogonal to the
undisputed fact that stimulus spending ends this year.

And the point about Democrats questioning Bush's legitimacy is a great one.
Here's someone who actually was arguably illegitimate for his first term, and
what did Democratic officeholders and commentators do? Fall over themselves to
disassociate themselves from the crazy hippies, and proclaim that we as a
country need to move forward. There was no Democratic tea party, and frankly
if the Republican tea party is honest about their concern with deficits, where
were they prior to January 2009?

~~~
anamax
> You're now saying ignore the votes, pay attention to how they talk about the
> votes?

We agree that Medicare part D is bad. You claim that the fact that Repubs
supported it and Dems didn't implies that Dems would have done better if
they'd had their way. One problem with that argument is that it assumes that
all alternatives are better. That's clearly false.

That's why I said that we should look at what the Dems wanted instead of
Bush's Medicare Part D. What they wanted was 40% more expensive, so if you
think that Bush's Medicare Part D is bad because of the cost ....

> Having a projected deficit next year is hilariously orthogonal to the
> undisputed fact that stimulus spending ends this year.

As I've pointed out, almost everyone else thinks that next year's deficit,
post-stimulus, will be over $1T and that the same is true the year after and
for the forseeable future under current law. (There's some disagreement over
whether the trend is $1.2T or $1.5T.)

If you're correct, why isn't Obama shouting your number?

~~~
jbooth
1) Medicare Part D managed to spend a boatload of money while providing an
absurdly small amount of care, most of it going straight to drug companies.
I'm sure you could do worse if you actively tried, but you'd really have to
try pretty hard.

2) And, the stimulus isn't contributing to that deficit, hence the comment
about it being "hilariously orthogonal". It was also 1/3 tax cuts if you don't
remember. Anyways, medicare Part D, the war in Iraq, the Bush tax cuts, and
the near-doubling of military spending are contributing to that deficit, as
well as tax base shrinkage due to recession. If we're counting relative to the
last time we ran a surplus.

~~~
anamax
> Medicare Part D managed to spend a boatload of money while providing an
> absurdly small amount of care, most of it going straight to drug companies.

As I said, we agree that it's bad. You've yet to establish that the Dem's
proposal, which was more expensive, was better.

> And, the stimulus isn't contributing to that deficit, hence the comment
> about it being "hilariously orthogonal".

You're the only one talking about the stimulus. I've pointed out that the
post-stimulus deficit is >$1T, while the pre-Obama deficit was $460 and the
last Repub Congress deficit was $160B, both with the bush tax cuts and more
war spending and the recession hadn't kicked in then.

The "out years" projections assume no recession.

~~~
jbooth
Bush owned the first > 1 trillion dollar deficit, that budget was passed while
he was still president. If we're doing stupid technicalities.

But again, that's silly partisan point scoring and totally beside the point.
Pulling one-sided stats with a total lack of intellectual honesty in order to
try and claim my side's better.

You're actually arguing here, "but if we cherry pick from the peak of the
housing bubble, my side looks great! Just don't look at the following year".

I don't blindly cheer for democrats like they're a football team, I try to
objectively evaluate what's going on. If more republican football fans did the
same, we might actually have a deficit reduction deal, or a plan to help the
jobs situation.

As it is, this is the GOP plan: [http://www.theonion.com/articles/new-gop-
strategy-involves-r...](http://www.theonion.com/articles/new-gop-strategy-
involves-reelecting-obama-making,21113/)

~~~
anamax
> Bush owned the first > 1 trillion dollar deficit, that budget was passed
> while he was still president.

Yup, and Obama has gone deeper.

I'm not claiming that Bush was good - I've said that he's bad. I'm pointing
out that Obama and the Dems have been worse.

> If we're doing stupid technicalities.

One "stupid technicality" is that the Obama and the Dems haven't been all that
interested in passing budgets.

That's why I talk about spending.

> but if we cherry pick from the peak of the housing bubble, my side looks
> great! Just don't look at the following year".

You've repeatedly claimed that there will be a huge difference in spending
after this year because the stimulus will be over. That makes a comparision
with pre-recession reasonable.

~~~
jbooth
Oh, now I get it, you're claiming that the current deficits are due to
spending by the Obama administration?

Can you point out which spending? I'm under the impression that they're
structural deficits created by Bush programs and exacerbated by the recession.
But if you could point out some large Obama spending plan that passed, I'd
change my mind.

~~~
anamax
There's ObamaCare for starters.

This week, we found out that they scored the subsidies based on single people
with no kids while the coverage goes to dependents as well, so the subsidies
will cost a lot more than predicted.

Every week or so, there's another $100B or so of spending in the bill that we
find out about that wasn't scored.

Pelosi was right - we had to pass the bill to know what's in it.

------
hugh3
It's natural that different ratings agencies should disagree sometimes. That's
why we have different ratings agencies.

~~~
OstiaAntica
In the US, ratings agencies and the bond rating system are a legacy of the New
Deal-- the ratings agencies are approved by federal regulators and are
protected from real competition.

Contrast that with stocks, where anybody can be an analyst and issue a rating,
and where there is no mechanical, legalistic system of downgrades and
upgrades.

The feds created the bond ratings agency oligopoly to "protect investors", but
I'd argue we'd be better served by true ratings competition and more due
diligence by investors.

~~~
hugh3
_the ratings agencies are approved by federal regulators and are protected
from real competition._

I'm confused. Surely if I decided to set up my own bond rating agency nobody
could stop me?

~~~
MartinCron
I think that it's a de-facto monopoly in that if you set up your own bond
rating agency, nobody would be compelled by law to only invest in things that
your rating agency considered "investment grade".

~~~
hugh3
Ah, now I understand, thanks. Anyone can rate bonds, but the ratings issued by
the "blessed" agencies have legal significance and mine don't.

~~~
OstiaAntica
That's right. The ratings agencies sit at a critical junction in the American
(and global system) so when they fail, or have mixed incentives, the whole
system breaks, which is a major part of the story of 2008.

------
ahi
S&P's position doesn't make any sense. If U.S. defaults what happens to the
world economy and every other AAA rated debt? So long as US Treasuries shore
up the balance sheet of every government and corporation, a default takes down
everything. If the US can't have a AAA, then no one can.

~~~
Havoc
I don't think these ratings are intended to still hold true in a global
meltdown type scenario.

Your point does show though how ridiculous the current situation is. A country
that is up to its eyeballs in debt really should not be the measuring stick.

~~~
ChuckMcM
"I don't think these ratings are intended to still hold true in a global
meltdown type scenario."

That was Vlad's point. The US debt is, for the time being, 'too big to fail'
in the sense that things like oil is priced in dollars. So almost by
definition, the US debt is AAA and everything else is the same or less risky
than that. (Talking strictly about soverign debt here, corporate debt is a
different kettle of fish)

"Your point does show though how ridiculous the current situation is. A
country that is up to its eyeballs in debt really should not be the measuring
stick."

This seems to be a common misperception, which is where our 'eyeballs' are,
relative to the amount of debt we are carrying as a country. Compared to the
GDP and size of the economy, we're not in bad shape at all. Further, even at
the anemic growth rates of 2%, if the Government cut nothing, which is to say
kept the same budget this year (in terms of dollar expenditure) as they had
last year (basically actually made the budgeting process 'net zero' so any new
spending was matched by an equivalent cut) the country would be running a
surplus in slightly more than 15 years. With 3 trillion in current revenue, 2%
growth compounded over 15 years gets us to 4 trillion in annual revenue. Even
running a half trillion dollar defict we 'win' by not spending any more. But
it does depend on us having the discipline to do that.

------
VladRussian
pathetic state of the industry as everybody is still forced to care about
output of the [ algorithm + business process it is embedded in ] combo that
produced AAA for mortgage bonds junk

~~~
gaius
This is a silly critique. We all know the weather forecast isn't absolutely
100% accurate, but it's still worth having.

~~~
VladRussian
>We all know the weather forecast isn't absolutely 100% accurate

forecasters who forecast "sunny" paid handsomely, while forecasters who
forecast "fog" aren't paid at all - what would be accuracy of a given forecast
for London from these forecasters?

~~~
hugh3
If your conspiracy theory were true, then why would S&P be rating the US
Treasury at anything other than AAA?

~~~
VladRussian
>If your conspiracy theory were true, then why would S&P be rating the US
Treasury at anything other than AAA?

do you really think that the US Treasury buys the rating like mortgage bond
junk issuers?

<http://en.wikipedia.org/wiki/Bond_credit_rating#Criticism>

"Starting in the early 1970s, the "Big Three" ratings agencies (S&P, Moody's,
and Fitch) began to receive payment for their work by the securities issuers
for whom they issue those ratings, which has led to charges that these ratings
agencies can no longer always be impartial when issuing ratings for those
securities issuers."

------
timedoctor
There is one reason why the US cannot go bankrupt .... it can just print more
money to pay the debts. This is very different to Greece which does not
control it's own currency. This is one reason why Euro states are more under
threat than the US.

Also Japan has far higher debt levels than the US, and it has an significantly
more aging population, negative growth in population and is in more trouble
than the US. However Japan is currently a safe haven from the US? Who decided
that Japan is a safe haven? If the Japanese government had to pay much higher
interest rates it would be in a lot of trouble, but at least it too can print
it's own money.

------
praptak
This sounds a bit suspicious:

 _"The United States has unmatched access to financing, meaning that the U.S.
government can support higher debt levels than other governments."_

"We think it's safe to lend them money, because they can borrow lots of
money."

------
netmau5
It bums me out that a single press release can cause so much of the world's
wealth to evaporate. Worldwide capital was something like $80T iirc, 2% of
that would have solved every budget crisis in the world.

~~~
sliverstorm
Was it real wealth if it can evaporate so? Before you immediately jump to your
guns, roll the question around in your mind: was value destroyed?

~~~
hugh3
Indeed, no real wealth was destroyed. Well, a few cars were set on fire in
London, but that was unrelated.

Part of the secret to my happiness is this: I permit myself to feel happy on
days when my stock portfolio goes up, but not to feel sad on days when my
stock portfolio goes down. In this particular case I'd much rather be happy
than consistent.

~~~
ars
Cars are not real wealth, they are negative wealth since they cost money, but
don't make money.

Wealth is owning things that can make money, not things that are money or that
were bought with money.

~~~
dpark
Your definition of wealth is broken. A car _is_ wealth. It may be a
depreciating asset, but it is still wealth. It has value in its materials. It
has value in its construction. It has value in its utility. A car most
certainly can make money.

Wealth consists of all things that have value. Shares in a company are wealth.
Dollars in your pocket are wealth. A house is wealth. A coal mine is wealth.

------
reirob
The question is not why Moody's thinks that U.S. still deserves AAA, but how
long it will take until Moody's will have to downgrade U.S.

------
Havoc
>basis of our decision [...] size of the U.S. economy

These guys missed have missed all that drama about to big to fail.

------
markyc
it wouldn't have anything to do with buffet's stock in moody's (and him
already losing billions as an effect of the recent downgrade by S&P)?

~~~
mcphilip
In theory, no, but buffet being moody's largest shareholder along with his
comments about S&P downgrade being in error sure is tempting fodder for
conspiracy theory :)

------
georgieporgie
I suspect that Warren Buffet has a glint in his eye, watching stocks dropping
right now. It's a fire sale in what is fundamentally the greatest economic
engine on the planet.

