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I Fervently Disagree with Krugman. Surely with credit-ratings there is often a political undertone. The US government has profited from their `good standing’, however in the last decade the economic policy has been a disaster because of tax revenue loss and increased war spending. The US should have lost their AAA rating in the year 2008. Can you imagine how Washington would have reacted? The US empire got the AAA rating in 1917, the collapse has taken shape within a single century. Some more observations ….
The Return of the Downgrade Cycle
Laguna Beach, California (June 6, 2011) – The downgrade craze emerged slowly in the summer of 2007, as the housing boom was shifting into bust mode. By September of 2007, the ratings agencies had downgraded only $85 billion worth of mortgage-backed securities (MBS). But within one year, that number would soar to nearly $2 trillion.
And these weren’t your run-of-the-mill downgrades from AA to A, or some such. These were epic downgrades unlike anything the financial world had ever seen. More than half the nation’s 32,000 asset-backed securities (ABS) with credit ratings received downgrades. Thousands of ABS plummeted from AAA to “junk.”
The credit crisis of 2008-9 ensued. But then the Fed and Treasury joined hands to fix the whole mess. At least that’s the official storyline.
Unfortunately, the Federal Reserve and Treasury did not vanquish the downgrade cycle; they merely swept the downgrades into a different venue, like San Francisco cops sweeping the homeless from the Financial District to Market Street.
Over the last few months, the ratings agencies have been working overtime to downgrade everything from corporate credits to state governments to foreign governments. Even the US government itself, is “under review for possible downgrade.”
Clearly, something is out of whack. When so many participants in the global economy possess so little ability to repay their debts, something is clearly broken.
Bonds are a promise to pay. But the history of the bond market is a history of broken promises. That’s because borrowing is easy. Re-payment is difficult. The near-extinction of the American AAA credit illustrates the point.
In the early 1970s, about 60 US companies possessed a AAA rating. A decade later, that number had tumbled to 30. By the early 1990s, the ranks of AAA credits had dwindled to nearly 20, and when the new millennium dawned, only nine AAA companies remained. Seven companies managed to retain this prestigious ranking until 2009, when Berkshire Hathaway and GE slipped into the AA ranks.
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"But I will not let myself be reduced to silence."
Everybody is broke. I blame Reagan.
Oh bullshit, Booman.
We are all of us…all Americans except the most frugal and level-headed and those below the poverty level…living way beyond both our means and our just deserts as well.
We eat McShitfood while Somalia starves? While much of the Third World still slaves to feed our consumption jones?
Please.
The imortal basketball sage/fool Micheal Ray Richardson once said about the terrible NY Nets when asked how they were doing “The ship be sinking.”
Well…the world ship be righting itself. Shifting over-adjusted ballast so that more people have more and less people have way too fucking much.
Get with it, Booman…”Reagan”…senile old fool that he was…simply did what he was told to do. What every preznit since Eisenhower has been told to do. By whom? By the American people as hypno-mediated by the Big Corporation Brothers.
WTFU.
AG
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In Washington Congress was debating a political choice, Wall Street and the US rating agencies were looking for economic policy. In fact, the debt deal was conform the wishes of GOP leader Boehner – read his speech here. Boehner tried to convince the men in suits on Wall Street.
The Obama administration was on the right track but failed in the end. A combination of tax revenues and spending cuts would have been the best choice. The US has been on an austerity program for decades since Carter and Reagan years. In Europe there is still fat left to be cut – avg. 40% tax revenues – in the US that’s just not possible. Thus the lonely escape will be through ending the Bush tax cuts and closing loop holes for corporations in using tax havens. Tough choice for Congress, ain’t it?
Once again, the NEW York Times made it all clear in two separate graphs: How the Deficit Got This Big.
SOCIAL POLICY & U.S. POVERTY 1960-1999:
An Economic History [pdf]
Cross-posted from BooMan’s fp story – Could the GOP Kill Our Credit Rating?
"But I will not let myself be reduced to silence."
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"But I will not let myself be reduced to silence."
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"But I will not let myself be reduced to silence."
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"But I will not let myself be reduced to silence."
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European economists in majority agree the US downgrade was long overdue. Blame is placed on failure of US political parties in Congress and failure to tackle a run-away debt in the near future.
"But I will not let myself be reduced to silence."
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"But I will not let myself be reduced to silence."