Tick, tick. August 2nd is the Debt Limit Armageddon. Or Not.

It has been all over the media that the Dems and Repubs are at loggerheads over raising our debt ceiling. If that doesn't happen, the country will default on its obligations and the economy of the U.S. and the world will collapse

georgeob1 wrote:

sozobe wrote:

I am all for cutting back on spending, but that's a discussion to have when the budget is being voted on, not when the debt ceiling is being voted on.

Hard to do when the Democrats in the Senate refuse to either consider a budget already passed by the House, or offer one of their own.

By this, do you mean to say that the Senate has refused a vote on the Ryan budget ? Because, nothing could be further from the truth.

http://thehill.com/homenews/senate/163307-senate-votes-down-ryan-budget-medicare-

Cycloptichorn

Hard to do when the Democrats in the Senate refuse to either consider a budget already passed by the House, or offer one of their own.

All bills for raising Revenue shall originate in the House of Representatives;

Mon Jul 18, 2011 at 05:01 AM PDT CBS Poll: 71% shun GOP handling of debt crisis

(CNN) -- Five new national polls appear to back up President Barack Obama's statement that the public supports a combination of both spending cuts and tax increases as part of any agreement to raise the country's debt ceiling.

And the latest surveys also indicate that an increasing amount of people say that action needs to be taken to raise the debt limit.

A small question has been bothering me for some time now. Back in December 2010, there was a brief "era of good feelings" after the rancorous midterm elections. During what was then viewed by many as a respite from hyperpartisanship, President Obama and the Republican congressional leadership reached accords on a whole series of issues. Many noisily criticized these deals—especially the extension of the Bush tax cuts for the wealthy—as cave-ins to the Republican agenda. And whatever one thought about the merits of the bargains struck back then, it was absolutely clear that we were heading into a debt-ceiling crisis by mid-2011. The math was simple. We were spending way more than revenue permitted, borrowing about 40 percent of all government spending, and by extending the Bush tax cuts, we were further denting revenues, accelerating the moment when we would hit the debt ceiling. Whether it was May or August of '11, the deadline was quickly approaching.


So why, as a condition for extending the Bush tax cuts, which President Obama repeatedly said he opposed, did he not require the Republicans to raise the debt ceiling then? Why didn't he make raising the debt ceiling part of the transaction that extended the Bush tax cuts? Why did he give the Republicans a second bite at the apple, cutting the revenue first, and then a chance to hold the government hostage again in the summer. Recall, extension of the Bush tax cuts added about $2 trillion to the federal deficit over 10 years, about the same amount that many of the debt-ceiling agreements would save over the next 10 years.

The White House is in this predicament because this administration really doesn't know how to negotiate

The White House has tried desperately to play the "grownup" throughout the ideological battles of the past several years. But trying to be the grownup and actually being the grownup are two different things

If the administration is outfoxed in the negotiating room over and over and over again, it won't matter how correct its economic policies are; it will eventually lose the American public

We've been asking the question, who is the real Obama? Nobody really knows. He's too wishy-washy to be president. No backbone, and mush for brains.

I watched Obama's speech after his aides posted it to his Facebook page. I didn't like it. He starts by promoting a number of false premises: He insinuates that America's level of debt is the most important question to answer about the budget right now, and that it's the debt, not lagging demand, that will cost jobs, raise interest rates, and keep businesses from investing

HS, Do you think S&P and Moodys are going to downgrade US bonds?

…Michael Thompson, Robert Keiser and Steven Krull of S&P Valuation and Risk Strategies, in their own words:

"We used the difference in current credit default swap (CDS) rates for the U.S. and the average CDS rates for other sovereign credits with potential new ratings–as implied by Standard & Poor’s Market Derived Signals (MDS)–in order to estimate how much rates on U.S. Treasuries might rise. Then, we combined our estimation with bond durations to compute the potential price drop. We used MDS since many of the sovereign credits have CDS rates that appear inconsistent with their credit ratings.

This could of course be a sign that some credit ratings are overly generous (there was silly us thinking, erm, price was the market-derived signal). But apparently not.

Instead, the authors took a bunch of CDS quotes for different sovereigns and obtained the difference between the US’s current CDS quote (52.5 basis points) and the “market derived signals” (MDS) quote for an average AA-rated (75.7bps) or A-rated (90bps) sovereign. These differences are then assumed to be proxies for additional interest costs and applied to the US’s outstanding 10-year and 30-year bonds:

Currently, the 10 year bond has a modified duration of approximately 8.5 years, and the 30 year bond, 16.8 years. All other things being equal, based on these durations, the 10 year bond’s price would drop by 2.0% and 3.2% for ratings reductions to ‘AA’ and ‘A’, respectively. Similarly, the 30 year bond’s price would drop 3.9% and 6.3%, respectively. Although the possible interest changes appear moderate, across the spectrum of U.S. Treasuries with maturities of two years and longer with over $4 trillion currently outstanding, the total loss to investors could easily range from $50 to $100 billion. Also, increased rates would result in higher borrowing costs for the Treasury in the future. For example, financing a $1 trillion deficit would add $2.32 to $3.75 billion per year in additional interest expense.

As the authors imply, their (“rough”) analysis could have been done on the back of a cigarette packet. And it all depends on these so-called ”market derived signals” ratings, which aren’t explained in the report or the FT article. Fortunately, there’s a guide to what this all means on the S&P website.

In the Market Derived Signals Model, the key parameters observed for a firm are its current five-year credit default swap spread, Standard & Poor’s long-term issuer credit rating and CreditWatch/Outlook status, Global Industry Classification Standard (GICS® ) sector, CDS document type, and currency denomination. We compile this information on a large number of firms on a daily basis, and then at the end of each day, we estimate a linear model that regresses the observed log of the CDS spread on each of the other variables. For purposes of the model, the credit rating on the underlying obligation is assigned a numerical score that corresponds to the credit ratings scale, i.e. ‘AAA’ = 1, ‘AA+’ = 2, etc.

The methodology was designed for firms but has been applied to sovereigns, with a small tweak to adjust for the different durations of CDS spreads (some had five-year and some had 10-year spreads).

It’s certainly wise for the rating agencies to incorporate several variables when assessing the impact of downgrades on interest rate costs. But it’s also interesting that it’s having to use this methodology because — as S&P admits — market prices are diverging from what its normal rating would expect.

July 26, 2011, 8:12 am
Meh, Bleh, and Eek

At this point, we just have to accept it as a fact of life: Obama doesn’t, and maybe can’t, do outrage — no matter how much the situation calls for it. The purpose of last night’s speech, if there was one, was to rally the nation against crazy Republicans. But there were no memorable lines, no forceful statements of the very stark reality. “Now, now, that’s not reasonable” isn’t going to move multitudes.

It turns out, I’m sorry to say, that he wasn’t the one we were waiting for.

Meanwhile, Boehner’s reply was as vile and dishonest as you might have expected.

I really don’t see how this ends without either default or the belated discovery by Treasury that the constitutional option is viable after all.

The point is that when S&P or Moody’s speaks, that’s not the voice of “the market”. It’s just some guys with an agenda, and a very poor track record. And we have no idea how much effect their actions will have.