Somebody please bring this guy to reality.

 

President Barack Obama Monday blamed a downgrade in the United States' credit rating on political gridlock in Washington and said he would offer some recommendations on how to reduce federal deficit.

 

Obama stopped short of sharp criticism of Standard & Poor's for its downgrade of U.S. debt to AA-plus from AAA on Friday. Senior administration officials have accused S&P of going ahead with the downgrade despite a $2 trillion mathematical error.

 

 

``Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we have always been and always will be a triple-A country,'' Obama said.

 

As Obama spoke, stock markets were registering another steep decline, dropping more than 450 points in afternoon trading.

 

Obama said in a White House appearance that he hopes S&P's downgrade of U.S. debt will give U.S. lawmakers a new sense of urgency to tackle long-term deficit spending and said he did not believe the reductions could be carried out with spending cuts alone.

 

A joint bipartisan congressional committee, to be formed under the legislation passed last week that averted a government default, is to report its recommendations in late November on how to cut $1.5 trillion in spending over a decade.

 

Obama said he would offer his own recommendations for fixing the problem and cited again the need to raise taxes on wealthier Americans and make modest adjustments to popular but expensive entitlement programs.

 

``Making these reforms doesn't require any radical steps. What it does require is common sense and compromise,'' Obama said.

 

He said U.S. problems are ``imminently solvable'' but that political gridlock has made compromise extremely difficult and has contributed to a picture of economic uncertainty.

 

Obama called on Congress to extend a payroll tax cut and unemployment benefits, saying if this is not soon it will lead to 1 million fewer jobs and less economic growth.

 

http://www.foxbusine...triple-country/

Ok.

 

I'm not sure what your criticism is.

Although I expect that the president could benefit from a reality check, I don't know how todays comments, which were the as-expected encouragement attempt could indicate any failure to understand the nature of the universe.

S&P is full of sh!t. No one in the investment world takes them very seriously, particularly as it relates to ratings of non-corporate entities. They're okay/pretty good at rating corporates. Other than that they basically suck. On top of that, they made a 2 trillion dollar error in their calculations, which is inexcusable. Given that they said a "grand bargain" that cut the deficit $4 trillion would keep the U.S. from being downgraded, the deal cut the deficit by $2 trillion, and they overestimated government deficit/spending by $2 trillion, it seems obvious to me that they were going to downgrade no matter what.

 

Treasuries actually RALLIED after the downgrade. It showed that in investors' mind the U.S. is still the best, safest bet. Obama is right: the U.S. is still a AAA country. This doesn't mean that the U.S. doesn't have a mid and long-range fiscal problem. But the U.S. is definitely still a AAA country.

http://fivethirtyeight.blogs.nytimes.com/2011/08/08/why-s-p-s-ratings-are-substandard-and-porous/

 

Five years ago, if you were an investor looking for guidance on which country’s debt was the safest to invest in, Standard & Poor’s ratings wouldn’t have done much to help you navigate the headwinds of the financial crisis.

http://fivethirtyeig...ard-and-porous/

 

Five years ago, if you were an investor looking for guidance on which country’s debt was the safest to invest in, Standard & Poor’s ratings wouldn’t have done much to help you navigate the headwinds of the financial crisis.

That's silly.

 

Moody's and Fitch were also dead wrong on sub-prime. Why are they "right" now in maintaining their AAA rating?

 

I don't know if they are. I haven't read enough on that. I am just pointing out a single article I found on the topic.

As long as the dollar remains the world's reserve currency the USA will be a AAA country. In the short term there don't appear to be any legitimate challengers to that status.

 

S&P is full of sh!t. No one in the investment world takes them very seriously, particularly as it relates to ratings of non-corporate entities. They're okay/pretty good at rating corporates. Other than that they basically suck. On top of that, they made a 2 trillion dollar error in their calculations, which is inexcusable. Given that they said a "grand bargain" that cut the deficit $4 trillion would keep the U.S. from being downgraded, the deal cut the deficit by $2 trillion, and they overestimated government deficit/spending by $2 trillion, it seems obvious to me that they were going to downgrade no matter what.

 

Treasuries actually RALLIED after the downgrade. It showed that in investors' mind the U.S. is still the best, safest bet. Obama is right: the U.S. is still a AAA country. This doesn't mean that the U.S. doesn't have a mid and long-range fiscal problem. But the U.S. is definitely still a AAA country.

 

These ratings in general don't mean much.

 

The US in reality should not be above a AA- rating and even that is generous. This country cannot honor its debt unless we undergo substantial entitlement reform.

 

Greenspan is trying to argue that the US will always be AAA because they can simply just print the money to honor its debt. Well, that means that any African country with a printing press should be AAA too.

 

It's political gimmicks and bad rating practice that made the US a AAA country in the first place.

 

The difference between the U.S. and any African country is that the U.S. happens to have the world's reserve currency. So your point is completely illogical. U.S. debt is in dollars. The debt of African countries tend to be in dollars, so printing money wouldn't help them at all. If anything, it would make their problem worse, not better. If their debt were entirely in their own currency then printing money would work for them. So, as long as the dollar is the world's reserve currency the US will be a AAA country. In the near and medium term there isn't a single currency that will challenge the dollar's status. The Euro is about to fall apart. The Japanese have had stagnant growth for some time. And the Chinese are not yet ready to take the lead role in the world economic system. The gold standard is and will continue to be U.S. treasuries, unless, of course, you decide to buy gold itself (and are willing to ride out its volatility).

 

If anyone wants to really understand what is going on I would suggest reading "When Markets Collide: Investment Strategies for the Age of Global Economic Change" by Mohammed El-Erian. He, along with Bill Gross, is the head of the biggest bond fund in the world.

 

In a nutshell, we're going through some turmoil because the world's economic power is being rebalanced in favor of the emerging markets, particularly India, China, and to some extent Brazil. The U.S. has been the driver of world economic growth in the last several decades and has financed that growth by borrowing. The Chinese have been piling up massive dollar reserves because of their very high exports to the U.S. In turn, they've been gobbling up American debt (Treasuries, corporates, you name it) in droves, which has made easy credit more available. The U.S. consumer (and government) borrowed too heavily in the recent past to finance this consumption. We've reached a breaking point. U.S. consumers (and the government) simply cannot borrow more to consume more. As a result, the world economy is struggling without U.S. spending. The only way to overcome this problem is for China and India to increase domestic demand and take their rightful place as economic superpowers. Until that happens we're going to be muddling along.

 

Honestly, I hate to say this, I am not sure there is much the government can do to change this fact. The only thing we can do is push the Chinese and Indians to incentivize domestic consumption. Over time it will happen. It just won't happen in the near term.

Gold is countercyclical, so of course it rallied from 2007 to 2011. It's just a sign that the global economy has been in a rut in the last few years. Certainly I would say that having gold in your portfolio is a good call as a hedge against a recession or something worse.

 

Look at the price of gold from 1980 to 2000. It dropped in value from about $600 to about $275 and coincided with two of the highest growth periods in American history.

Obama sucks, no re-election for 2012.

Good point.

In general gold moves counter to the equity markets. I am sure if you ran a regression of the price of gold against the price of the S&P 500 gold would have a negative beta. That was my point.

Yes, this downgrade made such a huge difference. In fact, what it actually did was make more investors buy those same US Treasury bills that S&P complained about.

 

The only thing I agreed with in S&P's report was how absurd it was for there to be no revenue increases as a part of any bill, like the one passed a few weeks ago. They were right on the money in that respect.

I never said it's not a true global reserve. In fact, it is as close to being a intrinsic global reserve as possible. If the global economy tanks investors will run to gold. That's not in dispute. My point is that there is a fair amount of volatility in gold in the long run, which is why I pointed out the extreme price swings in the last 30 years. That's all.