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why nobody comments on the huge trade deficit?
@classic10: Because trade deficits are only discussed by people who don't know what they are talking about?
Makes sense. A person who would take on unfathomable loads of debt to dole out gifts to their buddies and engage in all sorts of fiscally irresponsible spending would definitely get their credit rating lowered, why not the government?
@classic10: The trade deficit is related, but not in the way you think. In order to maintain a trade deficit, China has to invest those dollars they end up with somewhere, and they mostly do it by buying treasury bonds. So in a way the trade deficit feeds demand for U.S. debt instruments.
@I Love New Jersey: Except that credit ratings are based on the ability to pay. No one realistically expects the U.S. to default on its bond payments.
Now, California, on the other hand...
@classic10: Ah, yes, the U.S. "trade deficit", historically caused by those persistent and pesky capital account surpluses!
I'm not sure we want to give politicians the objective of ensuring U.S. markets are less attractive to foreign investment!
Think we could have a post explaining to the non-economists among us what exactly this means?
@hunter3742: The rating is a measure of how risky a bond is. If the rating is lowered, it means there's more of a chance the bond won't be paid back. In exchange for the higher risk, investors demand a higher reward, in the form of a higher interest rate. Higher rates for treasury bonds would make it more expensive for the U.S. to borrow money, and make debt service payments a larger part of the budget.
We Americans live in a strange twilight zone regarding our national debt. We believe that it will never be paid down,but we also believe that it will never default.This seems almost exactly like the mindset of a compulsive spender with a large credit line.They know that the day of reckoning will come,but since that day is not here,party hard.
The truth is,we voter/citizens have been fooled by politicians of both parties into believing that borrowing just a little more money will get us out of the current unpleasantness.
The joke is on whomever is lending us this money (and that includes retirees, investors and foreigners that see our debt as a good investment). When push really,really comes to shove,our brave ,wise congress will do the courageous thing and ...
Order a larger,more efficiant printing press to crank out more "money".
@Snarkysnake: We believe that it will never be paid down,but we also believe that it will never default.
How is this different from a large business? They all rely on revolving debt lines.
@Snarkysnake: That is why I never vote for those two business owned political parties...
And who creates the credit rating for countries anyhow? The Illuminati Country Credit Rating Service or something likt that?
@econobiker: The same bogus rating agencies that thought mortgage-backed securities were a good idea.
I think we're fine. What we can do is sell some T-Bonds/T-Bills at AAA rating while selling others at BBB rating. Then, if we default, the BBB's will lose all their value before the AAA's lose any of theirs. Surely this system will have no down side, as the chances of any defaults would be so low as to be negligible.
/Pay no attention to the man behind the curtain.
Someone should tell Gawker that Glenn Beck has been warning us about this for almost a year.
I would do it, but I was banned from that site for my right-winged comments.
@hunter3742: Means either more taxes, or your dollar will be worth will be lessened greatly. Or cutting a number of social programs. Probably a combination of the three.
Larger explanation. Less people willing to lend to the USA means less borrowed money. To make up the difference they have to get the money from somewhere, or cut spending. And in these situations the very last thing that is done usually is cutting spending.
My credit score is a number. I want letters too!
But AAA will still come and fix a flat on the USA's car, right?
@Murph1908: Perpetual doomsayers always look prescient when things go wrong, for the same reason a stopped clock looks right twice a day.
So our bonds are as good as junk mortgages.
We can just pay off bonds with even more worthless play money (dollars). If they include inflation more than X% as a default our notes should have been downgraded years ago. So our bonds are as good as junk real estate, great.
Thank you, Barney Frank and your b/f in Fannie Mae and Chairman O, for turning the United States into the third world country!
@Murph1908: Curiously, Glen Beck was utterly silent over the historically enormous deficits created by whimsically invading the wrong freaken' country because of made-up reasons while drastically cutting taxes to the uber-wealthy and huge corporations making enormous political contributions to an unnamed political party.
But drop a couple bucks for infrastructure, education or to stimulate a downed economy and all of a sudden, he's a deficit hawk. (chuckle)
So, was he an idiot before, or a hypocrite now?
The thing with these kinds of pronouncements is that they assume that, if given conditions don't change, then eventually we'll face (various bad things).
The problem is, of course, policies change as situations do.
@David Brodbeck: Remember when the national Republican Party was agitating to change the Constitution so that Arnold would be able to run for President?
Good times, good times.
@Trai_Dep: Your comment assumes that a) politicians realize things are changing and b) that if they do, the changes will be for the better. The performance of the US government in the past twenty or thirty years seems to indicate that one or the other of those assumptions will be proven horribly, horribly wrong - when it comes to fiscal responsibility the US is the equivalent of a child who thinks the answer is to scan a dollar bill and print out a few million copies.
@Trai_Dep: Not to mention that anyone with a brain could have seen this coming WAY before "almost a year" ago. Hell, I was worried about this back in the Bush I Administration, and I wasn't even an adult yet.
@Trai_Dep: As things turned out, it seems more likely it would have opened the way for Jennifer Granholm. ;)
@hunter3742: Our debt level relative to GDP is really not that high. The concern about ratings was raised because of a warning that the UK's credit rating might be lowered -- because their debt level may approach 100% of GDP. We have a long way to go before that happens here.
Let's not forget that we had budget surpluses at one point in the 1990s, so it can be done.
@Trai_Dep:
I do not believe for one moment that you have actually listened to him. Otherwise you would know he's very critical of the Bush administration too for their excessive spending and drift away from the conservative principals.
@johnva:
Apparently, there are a lot of people who didn't see this coming, namely congress. Otherwise we wouldn't still be planning multi-trillion dollar spending bills full of pork.
I wonder what part of 'doubling the national debt in 10 years' or 'borrowing 1.8 trillion of the 3.6 trillion budget' would give anyone that idea.
@Murph1908: Maybe they saw it coming and didn't care, because they were corrupt and being paid off. That seems much more likely to me.
@hunter3742: It means other countries, like China, will be more hesitant to lend us money, because we might default on the money we've borrowed. If they stop lending us money, the government will have two options, to raise taxes, or print the money into existence.
We're trillions of dollars in debt... we still HAVE a credit rating?
@hunter3742: But realistically, the ratings are comparative. The US may not be a great place to invest funds but it is certainly among the least shitty in the current atmosphere.
What makes anyone think the USA currently has a AAA credit rating?
@greyspot: I think a better measure is % of GDP, and it's growing fast and scary. It's in the mid-seventies or eighties now, and is expected to peak and level off at around 100% of GDP in about five years. That means that in five years, we will have as much debt as we produce every year as a nation.
On the other hand, if you think of debt like a mortgage, and GDP as "income", most households with a mortgage are well above 100% - and that's generally considered fine, and doesn't hurt their credit ratings.
Overall it's not the total number that affects our credit rating, it's our ability to pay back, and most of the ratings agencies would be hard pressed to make a case that the US is anywhere near being unable to make their payments.
Looks like America's ARM might be adjusting up... hope we have enough savings to cover the new cost of our debt.
This is why I dislike the deficit spending that has gone on, sure it has been sustainable, but one adverse credit event and all of a sudden the shock from debt payments can be too much.