Who benefits from a downgrade?

[snousle]

My take on the debt limit drama: Nowadays, the biggest problem for people with significant net worth is low interest rates. With rates so low, it's kind of hard to take wads of cash and turn it into more cash. Investment accounts are returning fractions of a percent interest. This is a big drain on the cash flow of wealthy individuals, who are used to their wealth generating 6-10% a year.

Provoking a crisis that downgrades the fed's credit rating will most likely raise interest rates. Possibly into double-digit territory. This would shift hundreds of billions, possibly as much as a trillion dollars, out of the pockets of people who have debt and into the pockets of people who have lots of assets. In particular, it would be a gigantic give-away to the Chinese, who are probably not happy with the low yield they get from their treasury bonds these days. In the event that the government's bills can't all be paid, reports of the Treasury "sending money overseas" while Americans go unpaid would be used to bludgeon the Obama administration, while ignoring the fact that the government is constitutionally bound to prioritize treasury bond payments over everything else.

It seems likely that the wealthiest Americans have already positioned themselves to financially benefit from the crisis. I can't think of any other good explanation for the behavior of the tea partiers in Congress.

Comments

[equinas.livejournal.com]

Provoking a crisis that downgrades the fed's credit rating will most likely raise interest rates. Possibly into double-digit territory.

Downgrading the Fed's credit rating would raise interest rates on borrowed money - home loans, credit cards, etc., not on invested money like savings accounts, CD's, and other investment accounts. Minimal net benefit to asset holders.

It seems likely that the wealthiest Americans have already positioned themselves to financially benefit from the crisis. I can't think of any other good explanation for the behavior of the tea partiers in Congress.

The Tea Partiers are not, for the majority, wealthy asset holders. They are (as they should be) deeply concerned about the insane debt the Obama administration is incurring, with no accountability for it. It is completely irresponsible fiscally and socially, and will lead to the collapse of this nation. Taking a stand demanding the we behave in a financially responsible manner (as the government expects its citizens to do) is a completely appropriate counterbalance to liberal spending insanity. I suspect a compromise will be reached, but I completely support that any increase in the debt limit be matched dollar-for-dollar in spending reductions. We just can't afford this nanney-state any longer. The Keynesian philosophy that debt is good is going to destroy our economy.

[snousle.livejournal.com]

Downgrading the Fed's credit rating would raise interest rates on borrowed money - home loans, credit cards, etc., not on invested money

Every single dollar borrowed by one party is being loaned by another - and those loans constitute investments. Every increased dollar in interest is landing in the account of some kind of investor, though not necessarily through investments the general public can participate in.

I don't think that the tea party candidates sincerely represent the interests of their base. It would be one thing to extract concessions for raising the debt limit; it is another thing entirely to refuse to vote for it under any circumstances, as many of them have pledged. That's not "taking a stand", it's vandalism.

I would be very curious to know what particular items you would like to see cut from the federal budget, and by how much.

[equinas.livejournal.com]

Simple. I want everything cut from the budget that we can't afford. And stop ADDING things to the budget that we can't afford.

In short, I want this economy run like any successful corporation. Responsible decisions, accountability, formulating a sensible annual budget and staying within it (balanced budget amendment), with oversight by the majority shareholders (the taxpaying public).

Not like a teenager with his fingers in mommy's purse and no one to watch the store.

[furr-a-bruin.livejournal.com]

I want everything cut from the budget that we can't afford.

Name four. I cannot believe you don't have opinions as to what we "can't afford."

To be fair, I'll even go first:

1. The war in Iraq
2. The war in Afghanistan
3. Tax-code corporate welfare on profitable businesses, such as the oil industry
4. Not permitting Medicare Part D to bargain with the pharmaceutical industry on prices like the VA does

In principle, I agree with most of what you're saying - but a balanced budget amendment of the sort that's been proposed recently could be disastrous - with the current wording, we could not have fought World War II. Granted, there hasn't been a truly "honorable war" since - but does it make sense to hamstring the government that severely?

And suddenly chopping government spending would stall an already sputtering economy and send us into another Great Depression. Further, part of the reason Obama's books look so bad is that - unlike Bush, who funded his foreign adventures with "emergency appropriations" - he's actually got Iraq and Afghanistan as part of the budget.

[equinas.livejournal.com]

First let me address yours:

1. Fair enough, things are winding down there.

2. When it's safe for our interests. After this, I'm with Ron Paul, no more meddling in other countries' business unless it directly affects our interests (or allies we have treaties with).

3. Sorry, I'm tired of people villifying something we all demand (to a gluttonous extent). Oil companies provide what we demand, and I don't see punishing them by removing their tax subsidies when the only thing that will happen is we all pay the price at the pump. UNLESS the government wants to lift the restrictions on responsible drilling. That could be a tradeoff.

4. My approach to that is to ban pharmaceutical companies from advertising prescription drugs. In general I try to be supportive of Big Pharma because again, they provide what we need. And I'm cognizant of the fact that it takes $500m to bring a new drug to market. But, as of this past few years, their ad expenditures have greatly surpassed their R&D, which isn't right. We're not talking about Advil which you can see on TV and then go buy. We're talking about near-useless advertising about prescription meds, "ask your doctor if Cialis is right for you". Shut UP! If your doctor thought it was right for you, you'd be on it. If Big Pharma was prohibited from advertising, I think we'd see prices go down.

Now my 4:

1. ObamaCare. Wrong approach, no tax base to support it, CBO says the "budget neutrality" claim is bogus, and unconstitutional to boot.

2. Major welfare reform. Time limits, purchase restrictions, and drug tests for welfare recipients. More incentive to get back in school and/or find work.

3. The "war on drugs": At the very least, stop this ridiculous war on pot that costs billions in law enforcement time and prison costs. Make it legal and tax the shit out of it. New income stream to government coffers. I'm almost Libertarian enough to say do it for all drugs, but not quite (yet).

4. Flat Tax: Delete thousands of IRS positions (by attrition is fine) and eliminate a tax code so complex no one can understand. Run the numbers, find a flat tax percentage, and make EVERY citizen pay that with no loopholes or deductions. For me, that would actually be slight tax increase, but I'm willing to pay it and I think most people would be as well if they could file their taxes on a postcard in 5 minutes.

Here's some more:

5. Eliminate foreign aid. Right now we're sending $50b/year of money we've borrowed overseas, much of it to countries who hate us. Even Iran gets foreign aid. Stop that shit until we can pay our own bills.

6. Close the borders. Stop all illegal immigration and most legal immigration for one presidential term until we balance our books and get our house in order.

7. Streamline the federal government. Since taking office, Obama has created, at last count, 138 new federal agencies. Bush was almost as bad. A bloated, gigantic federal government is not what this country was designed for. We need minimal federal government, and more control given to the states. Start with the IRS, and work our way down, handing responsibility back to where it should be, the states. And get rid of all these fucking non-elected officials making policy, aka, the "czars".

I have LOTS more, but I don't want to hijack Snousle's post to a crazy degree.

And suddenly chopping government spending would stall an already sputtering economy and send us into another Great Depression.

In my opinion,the bailouts never should have happened. The crash of 2008 was a rotten, superficial economy trying to correct. We prevented that correction and now we continue to ride the line of a depression. If we had allowed the correction to happen, kept the fucking government from doing insane things like buying GM, we would have had a few years of pain and already be on the road to recovery. (And I might add, that President Bush in 2003 warned Congress to put a stop to subprime lending or face a coming crash, and liberals like Barney Frank protested mightily because it would stall the Democrat dream of everyone being able to own a house. Even those who couldn't afford it. But I digress.)

[equinas.livejournal.com]

There's a lot of other budget cuts I would make. In reality, I like the idea of what happened in the movie Dave: He brought in a high-powered CEO and corporate accountant, who made the cuts like a smart company would do, instead of these political bean-counters trying to score points for their masters. Donald Trump may not be a suitable candidate for president, but he would sure as hell make a good Treasurer.

(And when did LJ start limiting comment length?)

[goldibehr.livejournal.com]

Donald Trump ... would sure as hell make a good Treasurer.

Yes, he's ideal: the man who has bankrupt multiple corporations and has been cited by the SEC for fraudulent financial reports.

[goldibehr.livejournal.com]

I can't think of any other good explanation for the behavior of the tea partiers in Congress.

I don't get the feeling that most "tea party" politicians are in it for personal enrichment. But the group's demographics (older, white, conservative, many born-again-christians) cause them to view the world a certain way.

From what I can tell, their "solutions" lead to a smaller social safety net, corporations having even more influence on our government, and allowing businesses to discriminate as they please (i.e. it's not the government's job to protect minorities.)

I'm not a fan of these goals.

[snousle.livejournal.com]

An interesting list. A few comments on each:

1) is a complicated subject; it is clear that the US has the most expensive and least effective health care of all advanced nations when measured in terms of overall health outcomes, despite success in spectacular technical interventions that help a minority of people. Obamacare is a dreadful hybrid system that I don't think is on the right path either. But it is a result of a political system that doesn't invest enough power in the executive branch to forge coherent policies.

The elephant in the room here is Medicare, which is the single biggest budget-buster we've got, with liabilities that have a net present value of 36 trillion. Funding Medicare and Social Security as they stand will require a 50% increase in tax revenues, making any other cuts nearly irrelevant. Yet these are not in your list?

2) Wasn't this already addressed through Clinton's welfare reform?

3, 4) No problem with that, though I would favor a VAT of about 25% over an income tax.

5) I assume you understand that this would be the end of Israel, who is the #3 recipient, as well as ending programs in Afghanistan and Iraq, which are the #1 and #2 recipients. Right-wingers would call this "giving in to terrorists". It is interesting how responses to "foreign aid" change when you ask specific, rather than general questions.

6) Neither party is sincerely interested in ending illegal immigration. I believe they both want it to continue, in part because agriculture runs on it, and in part because it's an endlessly convenient source of outrage. It could be ended overnight by cracking down on employers, but this will never happen.

7) I don't know how much money you think is here; my guess is not very much.

[h0gwash.livejournal.com]

LJ has limited post length for a long time for obvious reasons.

There is nothing wrong with having any particular hit list of budget cuts simply to keep operating properly. That isn't the problem

IMHO the problem is we, the citizens, don't want to compromise, and we demand this of our congressional representatives.

I think part of the problem is also that infotainment about debt ceiling crisis sells better than news about debt ceiling management. It's not exciting to know that there is already an ace in the hold, and the bickering is about the details, not the major points.

[furr-a-bruin.livejournal.com]

1. Well, we have to do something and the Republitards wouldn't accept a public option. As a nation, we spend more per capita and get less (in terms of results metrics - infant mortality, life expectancy, etc.) than any other industrialized nation in the world. I'm hoping the Affordable Care Act will lead to a REAL health care system.
   
   Keep in mind that a proper system would vastly reduce bureaucracy - no need for the bizarre patchwork of SCHIP here, worker's comp medical there, bla bla bla.
   
   
2. Yeah, yeah, yeah, fuck the poor harder. *eyeroll*
   
   
3. Absolutely agreed on this one. Even if we leave drugs like heroin, cocaine and crystal illegal, there are smarter ways to fight them - i.e., harm reduction.
   
   
4. Oh, FUCK no. Our problem is that the tax structure is already too flat with too few brackets. Under Eisenhower, there were 24 brackets, with the top one (on income over $3,750,000 in recent dollars) being 91%.
   
   With the closing of loopholes and simplifications elsewhere we don't need to go quite that far - Congresswoman Jan Schakowsky has proposed adding some brackets to the current structure -
   • $1-10 million: 45%
   • $10-20 million: 46%
   • $20-100 million: 47%
   • $100 million to $1 billion: 48%
   • $1 billion and over: 49%
   I like this.
   
   
5. We could do even better by closing military bases in Germany and a jillion other places, frankly. It's one thing to come to the aid of an ally - but why do we have to have a permanent military presence there?
   
   
6. The best way to do this is to throw the executives of corporations that employ illegal workers in prison for 20 years with no chance of parole. If the jobs dry up, they'll stop coming. Really, it's the same core issue as the drug problem - if you reduce demand, the problem improves. You can pound on supply all you want and never get anywhere.
   
   
7. There's certainly bloat in places - but smart reductions rather than just blowing the whole thing up is what makes sense to me. I don't want to live in Burkina Faso with cable.

To be frank - I'm probably closest to what they call in Europe a "Social Democrat", and I'm really quite fond of Denmark's "FlexSecurity" system. Other than firing people because of illegal bias (race, religion, etc.), it's actually fairly easy for Danish employers to manage their labor pool (unlike in France where trying to fire someone is a bureaucratic nightmare) - but there's also a substantial safety net (including universal health care, natch) that makes it easier for people to bounce back and find another job - or retrain for a new one, if the industry they were fired from is on the wane.

As for GM - I loathe their product, but letting them crash would have likely taken out the suppliers which would have meant Ford and the foreign operations here (I count Chrysler in that group because of the tie-up with Fiat) would be severely hit or destroyed as well. The auto industry is one of the last areas where the US actually manufactures stuff, and I understand not letting GM fail and take out the whole sector... much as I hate saving GM itself.

(Seriously - GM and Honda are roughly the same size; Rick Wagonner who ran GM into the ground was paid MORE than Honda's ENTIRE executive board - who live in and around Tokyo, one of the most expensive cities on earth. Even if Rick lived in the most expensive neighborhood in Michigan, I don't know that it could compare. How does that make any sense?)

And I should correct you in that the "ownership society" was primarily a BUSH line of argument.

[furr-a-bruin.livejournal.com]

I loathe VAT, but a fraction of a percent transaction tax on Wall Street speculators would do a world of good.

[furr-a-bruin.livejournal.com]

I simply fail to see why a company making multi-billions in profits needs ANY kind of tax subsidy whatsoever. I tend to loathe subsidies for established industries generally (and even for startup industries the government sees a reason to help jumpstart - they should be designed to taper off and eventually stop) - and I particularly loathe the combination of corn subsidies and high sugar tariffs that lead to High Fructose Corn Slop in every corner of our food supply. (Ever notice how much candy is "Made in Canada" these days? Because it's actually cheaper to make the candy there and import it than to make it here with our sugar prices.)

[broduke2000.livejournal.com]

I monitor fundys as a hobby.

I can tell you that the Tea Party really does want to bankrupt America, so they can convert it to a Theocracy like Iran. When they say "give power back to the states" they mean, "let our state write laws to get rid of Gays, Blacks, and anybody who isn't Christian."

It is creepy to watch bible thumpers on TV cherry-pick bible phrases the equate O'bama to the Anti-christ, and the Tea Party to their key of taking over the government.

Basically, in the South, this is been brewing since the Civil War. Thanks to Fox News and other Conservative news outlets, there's renewed vigor.

[barbarian-rat.livejournal.com]

I know I'm late for getting in on this ... but ... anyone who blames Pres. Obama, solely, for the rising public debt is just not dealing will all the facts.
Under Pres. G.W. Bush the country lowers taxes and raised spending on Medicare, and two wars, not to mention he presided over a very large increase scope of the Federal Gov't and the costs associated with that.

[barbarian-rat.livejournal.com]

After I posted that I realized that maybe I wasn't clear. I was referring to equinas' comments, not yours.