Egan-Jones Downgrades U.S. Debt

[clarkatticus]

So if I just make the interest payments on my mortgage, nothing will happen but good things? First, the bond market will tank, this is what happens when our credit rating is lowered. To sell our bonds, buyers will demand higher returns. We must sell bonds to service our debt so the national debt will increase exponentially until it eats up the savings we might possibly pass in cuts and new revenues. at the same time, banks will have to raise their interest rates as money supply dwindles, small cap business that need short term loans to pay cyclical needs like payroll and inventory will no longer be able to afford them and layoffs and business failures will rapidly occur. Large cap business will lose demand after this and have the same delayed fate. All this will take out trillions from the business economy and throw us into a recession within a month and raise the unemployment to historic highs. The most likely scenario? Obama will find a way to unilaterally raise the debt ceiling, or congress will give him the power in some halfassed way. This will save the economy but enable the GOP to point at Obama as the one who raised the ceiling and blame him for any economic failures in the future. Truth is, the GOP doesn't have the huevos to tackle the crisis they made themselves.

 

[ProudLefty]

So if I just make the interest payments on my mortgage, nothing will happen but good things? First, the bond market will tank, this is what happens when our credit rating is lowered. To sell our bonds, buyers will demand higher returns. We must sell bonds to service our debt so the national debt will increase exponentially until it eats up the savings we might possibly pass in cuts and new revenues. at the same time, banks will have to raise their interest rates as money supply dwindles, small cap business that need short term loans to pay cyclical needs like payroll and inventory will no longer be able to afford them and layoffs and business failures will rapidly occur. Large cap business will lose demand after this and have the same delayed fate. All this will take out trillions from the business economy and throw us into a recession within a month and raise the unemployment to historic highs. The most likely scenario? Obama will find a way to unilaterally raise the debt ceiling, or congress will give him the power in some halfassed way. This will save the economy but enable the GOP to point at Obama as the one who raised the ceiling and blame him for any economic failures in the future. Truth is, the GOP doesn't have the huevos to tackle the crisis they made themselves.

My hope is that Obama will follow Clinton's advice and say "The US Constitution says we pay our debts. I am ignoring the debt ceiling limitation as being an unconstitutional restraint. If someone doesn't like it, let them sue." Let Republicans just pound sand.

 

[ThisTooShallPass]

I wish you had some source for that assertion. All reliable sources I have seen most certainly do not agree with that position. This is not like some small business that can just write the checks as they come due, and then not mail the checks for a week or so until some money comes in.

But beyond that, if your position were actually true then that'd mean that more money is coming in than is going out, and therefore, no debt ceiling problem anyway. We are all agreed that that is just not true.

Some source for which assertion? That debt-to-GDP is what the issue is here? Sean Egan said it himself in the video I linked in the OP, and he's the one who makes the ratings determinations for Egan-Jones. QED.

Or that missing intergovernmental holdings debt payments matters? It doesn't, though. The Treasury's debt to SS is not like the Treasury debt sold on the market. In fact, it's not marketable at all: the SS trustees cannot sell the debt the Treasury owes them; that's why they're commonly called "IOUs". If it's non-marketable, it has no potential to contaminate the sovereign credit market even if repudiated: it's simply money the right pocket owes the left pocket.

Or that we have enough money coming in to make debt service payments? That's just basic math. We take in just over $2 trillion in tax revenue annually. Our annual debt service is around $300 to $400 billion. Therefore, our existing tax revenue is sufficient to service our debt. Anyone who says otherwise is lying.

So if I just make the interest payments on my mortgage, nothing will happen but good things? First, the bond market will tank, this is what happens when our credit rating is lowered. To sell our bonds, buyers will demand higher returns. We must sell bonds to service our debt so the national debt will increase exponentially until it eats up the savings we might possibly pass in cuts and new revenues. at the same time, banks will have to raise their interest rates as money supply dwindles, small cap business that need short term loans to pay cyclical needs like payroll and inventory will no longer be able to afford them and layoffs and business failures will rapidly occur. Large cap business will lose demand after this and have the same delayed fate. All this will take out trillions from the business economy and throw us into a recession within a month and raise the unemployment to historic highs. The most likely scenario? Obama will find a way to unilaterally raise the debt ceiling, or congress will give him the power in some halfassed way. This will save the economy but enable the GOP to point at Obama as the one who raised the ceiling and blame him for any economic failures in the future. Truth is, the GOP doesn't have the huevos to tackle the crisis they made themselves.

If you make the minimum monthly payments on your mortgage, you will eventually pay down your mortgage. That's what we're talking about here. That's what's been going on for the last two months. That's why the national debt has decreased by a few billion since we hit the debt ceiling.

I've been making minimum payments on my student loans for the last nine months and my debt load has decreased about $2,500 (despite an average interest rate of like 8.5%). Not a lot, to be sure, but the rate of amortization will accelerate as my debt load decreases.

And there's no reason we cannot make those debt service payments. Our tax revenue exceeds those minimum payments by at least 5 times. If we default, it will happen solely because Treasury elected not to make those payments.

Egan-Jones has made clear that our credit rating will be lowered not as a result of our failure to raise the debt ceiling but as a result of our failure to get our debt-to-GDP ration under control. S&P has also said that anything less than $4 trillion in cuts over 10 years will lead to a downgrade. Neither of them care about the debt ceiling, so long as debt service is paid.

For the record, there is no way to "save the economy" here. It's boned, and the only thing that's sustaining it has been unprecedented levels of debt accrual. If we balance the budget today we immediately revert to conditions of economic depression, whether we do it by raising taxes or cutting spending. And if the bond market revolts, we wind up not only with a balanced budget anyway but a worthless dollar on top of that, so we ought to get our fiscal house in order now while the pain is still manageable.

 

[ThisTooShallPass]

My hope is that Obama will follow Clinton's advice and say "The US Constitution says we pay our debts. I am ignoring the debt ceiling limitation as being an unconstitutional restraint. If someone doesn't like it, let them sue." Let Republicans just pound sand.

Again, the debt ceiling doesn't have to be raised to make our debt service payments.

And where you get the idea that the debt ceiling is unconstitutional is beyond me. The Constitutional explicitly grants to Congress the power of the purse -- to determine how money is spent.

If the President chooses to ignore this Constitutional constraint, he will be guilty of violating his oath of office and the separation of powers, and should be impeached.

 

[ProudLefty]

Again, the debt ceiling doesn't have to be raised to make our debt service payments.

And where you get the idea that the debt ceiling is unconstitutional is beyond me. The Constitutional explicitly grants to Congress the power of the purse -- to determine how money is spent.

If the President chooses to ignore this Constitutional constraint, he will be guilty of violating his oath of office and the separation of powers, and should be impeached.

We are not talking about money to be spent. That has zero, nada, nothing, to do with the debt ceiling discussion. We are talking about paying for the bills from what Congress has already spent. This has nothing to do with future choices and all to do with paying for past choices by Congress.

President Obama has zero, let me repeat, zero, to say about the budgets. He can accept them or he can reject them, but he gets zero votes on what goes into the budgets.

His oath requires that he do what Congress tells him to do. Congress has told him to pay the bills, and then Congress has said "But we won't let you", which is quite clearly an unconstitutional demand.

 

[ThisTooShallPass]

We are not talking about money to be spent. That has zero, nada, nothing, to do with the debt ceiling discussion. We are talking about paying for the bills from what Congress has already spent. This has nothing to do with future choices and all to do with paying for past choices by Congress.

Congress has not spent it. Congress has appropriated it.

But if the money is not there to be appropriated, then no money can be spent. Appropriated moneys not yet disbursed are not, in any meaningful sense of the word, a debt to be paid.

Where in the world do you get the idea that an appropriations resolution is legally superordinate to the letter of the law?

 

[ProudLefty]

Congress has not spent it. Congress has appropriated it.

But if the money is not there to be appropriated, then no money can be spent. Appropriated moneys not yet disbursed are not, in any meaningful sense of the word, a debt to be paid.

Where in the world do you get the idea that an appropriations resolution is legally superordinate to the letter of the law?

So, your point is that a president can pick and choose what to spend money on?

The Appropriations Bill is just a menu of items from which the President gets to choose where he spends money?

He could, for instance, refuse to act on any earmarked appropriations to the districts of Republican Congressmen? He could single handedly cut the military budget by 60%?

That is a surprise to me. I kind of figured the budget was the budget, and the president had to follow it. Period.

 

[ThisTooShallPass]

So, your point is that a president can pick and choose what to spend money on?

The Appropriations Bill is just a menu of items from which the President gets to choose where he spends money?

He could, for instance, refuse to act on any earmarked appropriations to the districts of Republican Congressmen? He could single handedly cut the military budget by 60%?

That is a surprise to me. I kind of figured the budget was the budget, and the president had to follow it. Period.

The budget is not law; it is merely a resolution.

If Congress passed a $100 trillion budget, would the President be obliged to enforce it by whatever means were necessary, including breaking the law? No; that'd be ludicrous.

If money is insufficient to meet Congressional appropriations, I believe it falls to Treasury to make determinations regarding what payments are to be made and what aren't, unless Congress provides direction. This is why I've said default can only happen if Treasury elects to deprioritize T-note payments.

 

[Dr.Who]

Generally when you raise taxes...you have more money....But go ahead...do the same thing I did...and raise no taxes....see how it works out.

The tax rates have varied and been as high as 91%. Tax revenues have varied from 18% to 20%. The highest correlation that COULD exist would be that a 91% tax rate would result in a 2% increase in revenue. But in reality that it not the way it was. It is simply not correct that higher taxes generally result in higher revenues.

Since revenue is always going to be between 18 and 20% lets make the rates the lowest they have ever been (because taxes are oppressive and immoral) in recent history and just learn to live with an 18% revenue.

 

[Gipper]

The tax rates have varied and been as high as 91%. Tax revenues have varied from 18% to 20%. The highest correlation that COULD exist would be that a 91% tax rate would result in a 2% increase in revenue. But in reality that it not the way it was. It is simply not correct that higher taxes generally result in higher revenues.

Since revenue is always going to be between 18 and 20% lets make the rates the lowest they have ever been (because taxes are oppressive and immoral) in recent history and just learn to live with an 18% revenue.

This is the real issue. Liberals/Dems will never agree with your point. They truly believe that raising tax rates will increase revenues to the Treasury and solve all our problems. They are unaware and do not care about the facts you present regarding the tax take as a percentage of GDP. We have discussed this issue ad nauseaum in other threads, but apparently our lefty friends refuse to accept it.

They think taxing the wealthy MORE is the answer. It does not matter to them that the wealthy already pay nearly ALL the income taxes.

Tax the rich, class warfare, and income redistribution is all they know. Anything that disputes this Socialist ideology is to be ignored, denigrated, and demonized.

Its CRAZY!!!

 

[pocketfullofshells]

The tax rates have varied and been as high as 91%. Tax revenues have varied from 18% to 20%. The highest correlation that COULD exist would be that a 91% tax rate would result in a 2% increase in revenue. But in reality that it not the way it was. It is simply not correct that higher taxes generally result in higher revenues.

Since revenue is always going to be between 18 and 20% lets make the rates the lowest they have ever been (because taxes are oppressive and immoral) in recent history and just learn to live with an 18% revenue.

This is why you can't win with the Right...you can't even get them to agree that if you raise taxes...it brings in more money...based on this theory if the tax rate was 1% we would make the same amount in Taxes to pay for things...you think thats true?

 

[clarkatticus]

Some source for which assertion? That debt-to-GDP is what the issue is here? Sean Egan said it himself in the video I linked in the OP, and he's the one who makes the ratings determinations for Egan-Jones. QED.

Or that missing intergovernmental holdings debt payments matters? It doesn't, though. The Treasury's debt to SS is not like the Treasury debt sold on the market. In fact, it's not marketable at all: the SS trustees cannot sell the debt the Treasury owes them; that's why they're commonly called "IOUs". If it's non-marketable, it has no potential to contaminate the sovereign credit market even if repudiated: it's simply money the right pocket owes the left pocket.

Or that we have enough money coming in to make debt service payments? That's just basic math. We take in just over $2 trillion in tax revenue annually. Our annual debt service is around $300 to $400 billion. Therefore, our existing tax revenue is sufficient to service our debt. Anyone who says otherwise is lying.



If you make the minimum monthly payments on your mortgage, you will eventually pay down your mortgage. That's what we're talking about here. That's what's been going on for the last two months. That's why the national debt has decreased by a few billion since we hit the debt ceiling.

I've been making minimum payments on my student loans for the last nine months and my debt load has decreased about $2,500 (despite an average interest rate of like 8.5%). Not a lot, to be sure, but the rate of amortization will accelerate as my debt load decreases.

And there's no reason we cannot make those debt service payments. Our tax revenue exceeds those minimum payments by at least 5 times. If we default, it will happen solely because Treasury elected not to make those payments.

Egan-Jones has made clear that our credit rating will be lowered not as a result of our failure to raise the debt ceiling but as a result of our failure to get our debt-to-GDP ration under control. S&P has also said that anything less than $4 trillion in cuts over 10 years will lead to a downgrade. Neither of them care about the debt ceiling, so long as debt service is paid.

For the record, there is no way to "save the economy" here. It's boned, and the only thing that's sustaining it has been unprecedented levels of debt accrual. If we balance the budget today we immediately revert to conditions of economic depression, whether we do it by raising taxes or cutting spending. And if the bond market revolts, we wind up not only with a balanced budget anyway but a worthless dollar on top of that, so we ought to get our fiscal house in order now while the pain is still manageable.

Only with the laws Obama has passed recently allowing relief to mortgage holders under water can a person pay the minimum for any length of time. If a normal set of rules were applied, the person would be in foreclosure within 3 to 4 months. No market will allow the US to pay the "minimum" while accruing added interest without lowering our credit rating. No buyer will purchase government backed bonds without added return to cover the expanded risk, these are the bonds we sell to pay for our debt. I don't know where you heard that the S&P doesn't care about the debt ceiling, but a coalition of S&P Fortune 500 companies are putting a great deal of pressure on Boehner to raise the debt limit. More likely, the S&P doesn't give a rats arse about the debt itself, they just want a deal.

 

[clarkatticus]

Lefty is correct, only the House is responsible for the budget. The president and minority can suggest their version or amendments or threaten veto, but they cannot "make" the budget. The Senate can do the same. Every time I hear Boehner ask for Obama to "lead" I wonder what his job is. Dollar says they pass the buck (raising the debt ceiling) to Obama and then criticize him for every budget issue they were too gutless to enact.

 

[ThisTooShallPass]

Only with the laws Obama has passed recently allowing relief to mortgage holders under water can a person pay the minimum for any length of time. If a normal set of rules were applied, the person would be in foreclosure within 3 to 4 months. No market will allow the US to pay the "minimum" while accruing added interest without lowering our credit rating. No buyer will purchase government backed bonds without added return to cover the expanded risk, these are the bonds we sell to pay for our debt. I don't know where you heard that the S&P doesn't care about the debt ceiling, but a coalition of S&P Fortune 500 companies are putting a great deal of pressure on Boehner to raise the debt limit. More likely, the S&P doesn't give a rats arse about the debt itself, they just want a deal.

I have no idea what you're talking re: mortgages. The minimum payment is simply the minimum amount that must be paid in order to amortize the loan according to the agreed-upon schedule. If you are foreclosed on despite making the minimum payments, then obviously the "minimum payments" changed (probably due to changing interest rates) or the bank committed fraud. I'd wager the latter, given the balance of the evidence.

But whatever. We currently pay about $3-400 billion in debt service. Double that if you it makes you more comfortable. We still bring in $2 trillion in tax revenue -- more than enough to pay for it.

 

[ThisTooShallPass]

The tax rates have varied and been as high as 91%. Tax revenues have varied from 18% to 20%. The highest correlation that COULD exist would be that a 91% tax rate would result in a 2% increase in revenue. But in reality that it not the way it was. It is simply not correct that higher taxes generally result in higher revenues.

Since revenue is always going to be between 18 and 20% lets make the rates the lowest they have ever been (because taxes are oppressive and immoral) in recent history and just learn to live with an 18% revenue.

According to what system of morality are taxes "immoral"?