Slashdot Mirror
S&P's $2 Trillion Math Mistake
Last friday Moody's S&P announced that they had downgraded the U.S.'s credit rating (leading to a pretty huge discussion on Slashdot I might add). Since then more interesting news has come out, suraj.sun writes "In a document provided to Treasury on Friday afternoon, Standard and Poor's (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake. After Treasury pointed out this error — a basic math error of significant consequence — S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one. S&P incorrectly added that same $2.1 trillion in deficit reduction to an entirely different baseline where discretionary funding levels grow with nominal GDP over the next 10 years. Relative to this alternative baseline, the Budget Control Act will save more than $4 trillion over ten years — or over $2 trillion more than S&P calculated. S&P acknowledged this error — in private conversations with Treasury on Friday afternoon and then publicly early Saturday morning. In the interim, they chose to issue a downgrade of the U.S. credit rating."
regardless of the math, S&P's reasoning is sound. let's not try to find scapegoats, please. the U.S. is hurtling at full speed towards a deficit meltdown, and quibbling over S&P's math doesn't change the fact that the country needs to come to terms with it ASAP.
Somebody correct me if I'm wrong, but at current spending levels, cutting $4T over 10 years still has us running a deficit. Considering that this deal was politically the best we could do, it's easy to agree with S&P's pessimistic view of our political budget woes.
"Ask not what your country can do for you." --John F. Kennedy
It was S&Ps rating system that the banks gamed with repackaged mortgages in the first place. Fuck um.
How long before the media points that out? Think they will?
Yeah, these are the same people that gave mortgage backed securities a AAA rating right up until it was blindingly obvious that they were wrong.
S&P in their report had essentially 2 issues:
a) They had questions about the budget strategy over the medium term.
b) They believed that political risk in the United States had increased substantially.
Given that we had 50+ US congressmen arguing that a sovereign default was either no big deal or desirable I can't see how one can disagree with (b). Political risk has substantially increased.
(a) is more questionable. The US economy is very large and the US ultimately does own a printing press. But the United States because of political divisions is simply unwilling to engage in the actions required to end high unemployment nor willing to reduce the government to the size needed if we intend to maintain a much lower labor participation rate than we had been.
So I can see both sides for (a), but (b) is the big factor. I think the Obama administration in trying to attack S&P based on secret conversations is simply failing to address the depth of the real problem. Whether their story is true or not, S&P is not wrong to notify investors that treasuries have risks they did not have 5 years ago.
It isn't basic math, or any math at all, really. Despite massive quantities of data analysis and some of the most mind bending graphs ever devised, plain old emotion still rules most financial markets and most certainly rules things like applying "AAA" versus "AA+" to some piece of paper.
These people everyone is amped up about changing the US' rating are the same people who entirely failed to foresee the biggest economic collapse most of us have ever lived through. They were handing out AAA ratings, to mortgage backed securities that no one other the guy who invented them could even understand, just a few months before they became almost completely worthless. The fact that anyone still trusts S&P and their ilk is illustrative of the fact that emotion rules this game. They've proven with math that they know no more than anyone else.
"Sacrifice for the good of The State" - The State
Not to be silly or anything but it deserves to be downgraded.
AAA is supposed to be rock freaking solid. You do not worry about it.
This up to the wire biting your fingernails crap is *NOT* AAA material. If you saw the last 3 budget rounds being this sort of fiasco (which it was) would you want to invest in it?
If you have to worry about it then it is not AAA material. It is still 'good' credit. But something you need to keep an eye on so AA+.
The rating system was subjective in the first place. As seen by the AAA ratings they were giving out to 'too big to fail' institutions right before they failed. In many ways s&p helped create the very mess they are downgrading the US gov for. As the US gov covered their bets...
I happen to be on the side of "spend less", but it is a perfectly legitimate opinion to want to spend more AND collect more. The Democrats aren't advocating raising spending while lowering taxes. Frankly, that sounds like what the Repubs did under Bush II.
W..w..W - Willy Waterloo washes Warren Wiggins who is washing Waldo Woo.
Yeah, and God Forbid the people that can afford to give a little more to help the country that allowed them the opportunity to become wealthy in the first place actually do so. They didn't write those big bribe checks...oh, I'm sorry, campaign contributions... to have someone turn around and raise their taxes and cost them an extra percent a year. I mean, what is that, a few thousand dollars less a year? How will they ever survive?!
I'm all for spending cuts, but without taxes being raised on the wealthy, it's just more of the same BS. Tell the people living on 12 grand a year in the projects that it's time to tighten their belts so that the asshole speculators on Wall Street can get away with their ridiculously low effective tax rates. Oh, but I forgot, all that paper being traded back and forth "creates jobs". That's why these there's so many jobs out there now, right? That's why these companies are all sitting on record amounts of cash in the bank both here and abroad, meanwhile they're laying people off left and right...
This is just Part II of the extortion scheme that started with the bailouts as the rich try to snatch up an even bigger piece of the pie than they already have.
Democrats want the government to spend more. The TEA Party wants the government to spend less. Who do you think is right here?
A plague on both their houses!
From what I read here, outside of the USA, where the media are less partisan when covering internal US issues, the Democrats want the government to spend LESS, and the Tea Party wants the government to spend LESS too. They disagree a little on which parts of government should have most cuts.
Also, the Democrats want to increase taxes a little, to narrow the gap between government spending and income.
The Tea Party DO NOT want to increase taxes to narrow the gap.
Both are proposing that the government spend more than it raises.
Did I miss anything important?
Paul "Say no to feeping creaturism"
1) Plan on gaining 100 pounds.
2) Gain 75 pounds.
3) Congratulations. You have a weight loss of 25 pounds.
Except for ending slavery, the Nazis, communism, & securing American independence, war has never solved anything.
Government: We planned to increase the budget deficit by $4 trillion next few years, but now we're only increasing it by $2 trillion! We cut spending by $2 trillion dollars!
S&P: You still increased spending. You didn't cut anything. You still spend almost twice as much as you make. You are no longer credible.
Government: Traitors! Terrorists! Hostage takers! Can't you idiots in private industry do math?
Pathetic. Even the slashdot title of this article is complete rubbish.
6th Street Radio @ddombrowsky
Considering how petty Congress is being about the entire issue, I would downgrade the damn rating as well. From their ( S&P ) standpoint, the leaders of the USA are willing to put the entire economy at risk while they squabble about their own little pet issues.
:|
We ( the US ) obviously can't get its act together by ourselves. Congress proved that. It took the threat of a downgrade before we finally decided to get semi-serious about the issue. Personally, I would consider the S&P downgrade as a warning shot across the bow. In effect "Get your sh*t together or suffer the consequences".
We shouldn't REQUIRE a GD debt increase to begin with. If our idiot 'leaders' would learn to spend less than they take in, we wouldn't NEED a debt ceiling at all. S&P sees this, as does the rest of the world. The leadership isn't interested in reducing their spending and, as a result, S&P made the right decision. This isn't a sustainable path. At some point it WILL come falling down around you. Why the retards in charge can't figure this out is beyond my ability to explain.
Personally, I hope the other rating companies follow suit. It will take that level of threat before my elected morons finally quit bickering and note the cliff edge they're dancing on. Maybe ( and it's a longshot ) they'll be able to get this train back on the right track. Maybe.
Given their track record, I'm definitely not counting on it. . .
Intended or not, corporations saw Social Security as a excuse to drop employee pensions (and take the difference as profits). At one time, even "menial" workers got decent pensions as part of their employment package. After 30 years of downsizing, rightsizing, off-shoring and union-busting, most people's only options for retirement are to gamble what little savings they have on the stock market (we all know how that worked out) and fall back on Social Security for the rest. The problem is not the "entitled" poor and retired, it's the entitled corporations who have sucked this country dry and given nothing back.
Support Right To Repair Legislation.
Well, first a positive note : America's not nearly as bad as most other nations that grace this planet. China, while currently better than America, isn't without debt problems. But America's better off than Europe when it comes to debt. Yet Europe is better behaved than Turkey & middle east, who are in worse shape despite massive influxes of money.
But still that would mean that on the average, Americans ... did never even intend to repay their debts. Welfare states were created, knowing full well they were doomed. People trading their income now, in the form of taxes, for health care, study help for their kids and pensions that won't come, except for the first ones who enjoyed these benefits.
And yet lots of generations had the option of turning the tide, and didn't. Not just in America, but in Europe, the middle east, and Asia, lots of people had the option of stabilizing the system by choosing to take responsibility instead of shoving the bill to their kids, and all chose wrong.
The real question is, now that the cat's out of the bag, how long do we pretend we can put it back in ? The system has failed, and while this obvious truth can still be denied, it will reassert itself soon enough. Though I do hope we can pretend a while longer, I have a family to take care of, and despite the rosy pictures implied in leftist and progressive propaganda if we simply take the money from the bankers, we all know that their promises of wealth, brotherhood and justice for all will turn into the wars, concentration and slaughter camps they turned into last time.
I would simply suggest to take the lessons of history to heart : when public opinion does not just jabber about evil bankers, but actually attacks them in numbers, do what millions of people forgot to do before world war 2 : run ! Run to a place with sufficient food, home produced food, without multiculturalism (which will soon be nothing but a fancy word for ethnic wars), and preferably a nation without military alliances. Stay far away from any large American city, get the fuck out of Europe (the EU, not Switzerland), get the fuck out of the middle east, get the fuck out of Africa, or if you must, at least stay out of Northern Africa and the Saharan countries.
I don't know who will rise, it depends on many factors. I guess it will be whichever decent nation manages to not get destroyed, and I frankly seriously doubt it will be China.