Stupidity At Moody's: Get Rid of Debt Ceiling and We Won't Downgrade Your Debt
In the midst of staggering illogic surrounding our debt ceiling, ratings agency Moody's just raised the bar.
On Monday, it announced that the United States could increase its creditworthiness by - wait for it - eliminating the debt ceiling altogether:
The United States is one of the few countries where Congress sets a ceiling on government debt, which creates "periodic uncertainty" over the government's ability to meet its obligations, Moody's [MCO 36.45 0.13 (+0.36%) ] said in a report.
"We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty," Moody's analyst Steven Hess wrote in the report.
Consider the illogic on display.
An entity's credit rating - whether we're talking about an individual, a household, or a business - is measured by amongst other things the total amount of debt outstanding, the value of the assets owned, and the cash flow generated each year.
If debt outstanding rises without a commensurate increase in assets or cash flow, the creditworthiness drops.
Yet the folks at Moody's are actually saying that in the United States's case, if it were to remove a curb on debt growth, in their view this would increase creditworthiness.
To further demonstrate the inanity, consider the next few paragraphs:
Stepping further into the heated political debate about U.S. debt problems, Moody's suggested the government could look at other ways to limit debt.
It cited Chile, widely praised as Latin America's most fiscally-sound country, as an example.
"Elsewhere, the level of deficits is constrained by a 'fiscal rule,' which means the rise in debt is constrained though not technically limited," Moody's said, adding that such rule has been effective in Chile.
It also cited the example of the Maastricht criteria in Europe, which determines that the ratio of government debt to GDP should not exceed 60 percent.
So, on the one hand, Moody's wants America to officially "limit debt" citing other countries that are doing a better job of it.
But if the U.S. got rid of the only legislative mechanism it currently has to accomplish this, the ratings agency would see it as a good thing.
That's akin to fearful residents in a community inhabited by a known child molester hoping his LoJack is removed.
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Comments
Moody's a wholly owned subsidiary of...
Submitted by USMC8411 on Mon, 07/18/2011 - 9:24am.
b.hussein o'bama.
They should have made the more successful threat that social security would not be paid, vets would not be paid, the military would not be paid...
So could this be considered
Submitted by Beukeboom on Mon, 07/18/2011 - 9:27am.
So could this be considered political extortion?
Yes. Yes it would.
Submitted by falcon on Mon, 07/18/2011 - 3:14pm.
n/t
“I will not stand by and watch this great country destroy itself under mediocre leadership, that drifts from one crisis to the next, eroding our national will and purpose.” – Ronald Reagan, July 17, 1980.
Raw Politics
Submitted by iveseenitall on Mon, 07/18/2011 - 9:47am.
Have you noticed the articles( and so-called "polls") coming out in support of raising taxes? Now Moody's! Obama and his cronies want it their way and that's that. This is a war for the economic survival of our nation. The bastards are lining up their forces in opposition to the will of the people. Jobs for the people? No! Lower taxes. No! Inflation ? Yes! Debt? Yes! Your children's future is on the line as the "haves" are beginning their final push on the "have nots". Sad.
P.S.The next attack is going to be cancelling SS and veteran's checks. Don't think Barry won't do it. Sad.
P.S. Sniff,sniff. What's that smell?---oh, it's George Soros--Barry's puppet master.
NEVER,NEVER trust a "liberal" (progressive)
If raising taxes on the wealthy is really so popular,
Submitted by lsudolemite on Mon, 07/18/2011 - 11:57am.
then why are the Dems so anxious to change the subject from taxes to "revenue"? After all, they just want to raise taxes on those mean, stingy rich people, right?
standards go sub-standard
Submitted by jon_torlin on Mon, 07/18/2011 - 9:44am.
That's like a bank issuing someone a credit card even if they don't have a job or some sort of income that's reliable.
Talk about really lowering your standards to a sub-standard level.
With the way things are going and there are more and more people unemployed, the government doesn't have a reliable source of income through its taxes and therefore attempts to (successfully it seems) get money a different way.
All of that without using one whit of common sense to cutting back spending.
The government is not the answer, it's the problem. And in accordance with the Declaration of Independence, this government needs to be abolished and replaced.
-Jon
Eliminate the debt ceiling?
Submitted by ForeverOnTheRight on Mon, 07/18/2011 - 9:59am.
Eliminate the debt ceiling? How ludicrous! That would be like eliminating the warning track at a ball field.
Or the outfield fence.
Submitted by falcon on Mon, 07/18/2011 - 3:15pm.
n/t
“I will not stand by and watch this great country destroy itself under mediocre leadership, that drifts from one crisis to the next, eroding our national will and purpose.” – Ronald Reagan, July 17, 1980.
Then lets not stand by
Submitted by hayate1 on Tue, 07/19/2011 - 1:38am.
“I will not stand by and watch this great country destroy itself under mediocre leadership, that drifts from one crisis to the next, eroding our national will and purpose.” – Ronald Reagan, July 17, 1980.
and let this political gaming further erode confidence in this great nation. The majority of us favor a compromise that includes cuts and tax hikes so why are the conservatives refusing the will of the people? Why are they offering up plans, by design or ignorance, that eliminate jobs, raise unemployment, hurt the most needy among us and stifle consumer demand? Why? It is that demand that will create jobs, not low taxes. Heck, even the WSJ said as much.
It is my contention that mediocrity is exacerbated by a steadfast refusal to accept reality based on data and instead continue to live in a world of theories and stereotypes.
E.G. Theory-cutting taxes on the wealthy and companies creates jobs. Reality-taxes are and have been very low for a decade so where are the jobs?
Theory-tax cuts cause tax revenue to increase. Reality-where that true then why did the deficits explode when taxes were cut?
Theory-raising taxes will hurt job growth and economic growth. Reality--hard to say with exactitude but it is a matter of historical record that the economy and job growth ALWAYS was better when taxes were higher. Besides, lets give something else a try bc the low tax thing just aint workin.
"Facts are not decided by how many people believe them. Truth is not determined by how loudly it is shouted."
I do believe, hayate---
Submitted by matthewdean on Tue, 07/19/2011 - 9:19pm.
that your penultimate sentence is pure bullshit.
MD
Better idea
Submitted by Joe C Camel on Mon, 07/18/2011 - 10:01am.
Get rid of all the congress people who put us here first, put out the current occupant of the White House, impeach members of the Supreme Court, and start over with true Americans who believe in the constitution, it's meaning and will follow it. Once back to those guiding principals, this will be solved. PS...never let the wolf tell you to leave the hen house unguarded...
I see it as illogical
Submitted by octavioj on Mon, 07/18/2011 - 10:10am.
I understand this to be illogical but I think worth debating. If Congress needs to approve all spending, why is it that we need a debt ceiling? Congress can simply prevent the president from spending without the debt ceiling, can they not? I must be missing something not being fully versed in the history of the debt ceiling.
It's the constitution, thank goodness...
Submitted by retrocon on Mon, 07/18/2011 - 11:38am.
Some of the powers of congress, per the Constitution:
"... to pay the Debts ..."
and
"To borrow money on the credit of the United States;"
and,
"To coin Money, regulate the Value thereof, and of foreign Coin, ..."
They are separate, so have to be specifically called out. Congress doesn't really "increase the debt limit," well, ok, they sort of do, with some debt limit thing they did in 1917, but even then, constitutionally, they actually specify how much we can borrow. Same thing, but the conversation makes it seem like there's something called a debt limit that's in the constitution. It's really "authorizing the amount of money that the United States can borrow on our credit." Remember, congress authorizes it, the executive branch acts on it.
I think that keeping them separate was intentional, so that spending always had constraints to deal with.
Congress has, for some reason, given up the final power i mentioned, which is part of why we're in the mess we are.
"Congress has, for some
Submitted by JoeBob on Mon, 07/18/2011 - 1:21pm.
"Congress has, for some reason, given up the final power i mentioned, which is part of why we're in the mess we are."
And McConnell, playing "blame-game" politics, is willing to do it again with his "Plan B". "Yeah, let's just give the President all the spending control he wants, so he can take the heat for it".
Quit playing politics and do your constitutionally-mandated damn job, Mitch!
It makes sense what you said
Submitted by octavioj on Mon, 07/18/2011 - 4:07pm.
But it seems the debt limit is something that came after the constitution. That to me is the hard part to understand. Yes Congress should still remain in charge of the purse strings. But they can authorize and de-authorize spending. Why is there a limit? Cannot Congress simply rescind spending therefore enforcing a limit?
name game
Submitted by MidAmerica on Mon, 07/18/2011 - 10:50am.
Instead of using the term 'debt', which has negative connotations, why don't we exchange the word debt for a more positive outlook by calling the revenue shortfall nonaccrued revenue?
We would all feel better.
Speaking of changing names, notice how the Dems have begun
Submitted by no tingly legs on Mon, 07/18/2011 - 10:55am.
talking about "raising revenues" instead of "raising taxes"? They think we're REALLY stupid. Believe me, it doesn't make me "feel better". It just gets me more po'd at the incompetent fools running this country.
Payment of the Interest on Debt Depends on One Thing,
Submitted by Comrade Jim on Mon, 07/18/2011 - 10:34am.
Whether Obama chooses to pay the interest or not.
Interest is 6% of the budget (spending) or about 10% of the revenue stream into government. Obama could pay the interest and still have 90% run the rest of government.
If Moody's is downgrading anything it is downgrading Obama's ability to manage the budget, i.e. Obama's intention to pay the interest.
By the way, Moody's isn't so great. Moody's missed the housing bubble among other things. Yes, many missed the housing bubble, but Moody's is in the risk assessment business.
Real people are concerned
Submitted by Edhenry on Mon, 07/18/2011 - 10:44am.
Real people are concerned over the actual ability to pay...which is starting to become uncertain.
"It's the spending/porkulus/obligations/waste/fraud/gubment unions/unfunded mandates/double counting/unrealistic GDP calculations/demographics/ignoring debt commission/prospective inflation stupid"
Un-serious
Submitted by bkeyser on Mon, 07/18/2011 - 10:59am.
The one thing I take from this article is the lack of seriousness within Moody's. How can they threaten to lower the credit rating for inaction, and yet call for the elimination of a ceiling as a corrective measure? Someone from the administration has made a call or two, probably going back a couple of months, and this is the result. No doubt in my mind that this is nothing but a manipulation by Lew or someone else with some pull.
Banking on stupidity
Submitted by jon_torlin on Mon, 07/18/2011 - 11:15am.
They are doing some serious banking or betting on stupidity especially when the solution is so simple and obvious: stop spending
The dems would have us believe that they are doing us some good which I don't see how, but like I told my dad the other day when i had lunch with him, if Obeyme had been a CEO of a company, he would have been fired long before this.
Anyone who has gone through bankruptcy knows that it's a tough decision to make but it's a good one because it gives you the chance to make things right once you take steps to reign in your spending. I know this first hand from my idiot days years ago. Finally got out of that 10 year stigma of having it on my credit record. But the thing is, I learned a lot about frugality and practical spending habits.
This is what the fed gov't needs to do, but because of the bogus potus, they won't do it and they want to keep going the way it is because we know full well that their intention is to break this country. Hell, just this nonsense about the debt ceiling is proof of that.
-Jon
Wasn't Moody's....
Submitted by almostacowboy on Mon, 07/18/2011 - 11:05am.
involved in rating all of those "repackaged" mortgages as "good" loans?
I thought it was all Bush's
Submitted by Free Stinker on Mon, 07/18/2011 - 11:12am.
I thought it was all Bush's fault? /sarcasm off
/// Sarah Palin Fan since July 11, 2007 /// خال
Don't forget tieing it in
Submitted by Beukeboom on Mon, 07/18/2011 - 11:16am.
Don't forget tieing it in with global warming/climate change/whatever they're calling it this week.
Credit Rating Gymnastics
Submitted by Pilgrim1949 on Mon, 07/18/2011 - 11:22am.
So.....
If I manage to max out my credit cards and my total debt surpass my total assets and ability to repay that debt, then the surest way for me to achieve a stellar credit score is to raise all of my debt limits and then keep on spending like crazy?
Uh huh....only in Washington's fuzzy math, the result of equally fuzzy thinking.
One definition of a moron is one who, having become hopelessly lost, stomps on the accelerator and increases his speed. ("Ladies and gentlemen, this is your aircraft Captain speaking. The bad news is we have absolutely no idea where we are, but the good news is that we're making great time!")
"Ye canne change the laws of physics....." but some politicians believe that with the right legislation you can pretend they don't really apply to your own pet projects...
My first credit card
Submitted by jon_torlin on Mon, 07/18/2011 - 11:34am.
I remember years ago when I got my first credit card. It was a Capitol One visa card, $1000 credit limit. Thought I was in heaven, carrying around $1000 extra bucks in my wallet and only having to make small payments....with a 15% interest. How dumb I was then. Then it became $2000....then a second credit card by Discover. Same amount. Soon the amount grew to $10,000 total. I was spending more than I could take in. Tried credit counseling with consolidation, but Visa refused to lower their interest rate and in a fit of anger, decided to do bankruptcy.
$10,000 might not seem much today but 13 years ago it was while on a modest income.
I think about the above every time I think about the debt ceiling nonsense.
-Jon
Moody's and S&P and the others...
Submitted by c5then on Mon, 07/18/2011 - 11:26am.
Are in business, at least partially, to rate debt and therefore require borrowing for this to be necessary. Without any borrowing, there would be no need for credit rating agencies.
It's like an individuals credit rating. if you have never borrowed any money from anybody, your rating is zero (or whatever the lowest number is that they randomly pick). The same rating as someone who has borrowed money and defaulted. These companies are in the loan business. Of course they want the US to raise the debt ceiling. Without us doing that there will be no (or almost no) US bond market and they will have precious little to do.
Madison and Jefferson and Franklin built a Republic - Roberts killed it!
When an administration doesn't understand
Submitted by Kenyon Schraeder on Mon, 07/18/2011 - 12:36pm.
how an economy functions or what finance entails, it's little wonder why spend, spend, spend seems logical and perfectly okay. Commit now to "buying" as much as we like and then worry about it later on. Unfortunately, we have leadership that will summarily "take over" any facet of our economy that it deems necessary to continue the frivolous spending and deflect culpability.
Amazing how the poorest and illiterate of the poor can manage to grasp the fundamentals of revenue, overhead, cutting expenses, negotiating a better acquisition cost, money management, etc. all the while pushing a ramshackle cart and selling whatever by the glass, cone or piece. And yet our intelligentsia refuses to accept any of it.
It reminds me of the two guys who bought and sold turnips, door-to-door, from their pickup truck. They bought them for $1.00 a pound and sold them for $0.85 a pound to be competitive, figuring they'd "make it up on volume". Well, after a few weeks of quickly selling out their load of turnips, they started to dip into their savings to keep the business afloat. Over a beer they decided that they weren't taking in enough money. So, they agreed they needed a "bigger truck".
Moody's credibility has just been lowered.
Submitted by dbehsman on Mon, 07/18/2011 - 12:52pm.
I, dbehsman, hereby declare that Moody's credibility has been lowered to F-. Obviously a bunch of stoners have taken over after Moody's gloriously failed in rating Mortgage Backed Securities in 2006 (incidentally, a blind man could have seen that one coming).
If the wafting of this edict
Submitted by jdhawk on Mon, 07/18/2011 - 2:03pm.
If the wafting of this edict by Moodys smells like sh*t, then you know Warren Buffet can't be too far behind. After all, he is the controller shareholder (about 20% of directy and indirect equity ownership) of the company. You know, the very same "rating agency" that found Lehman Brothers and Bear Stearns to be "investment grade" right up until they collapsed!
Yes, Buffet, whose PR portrays him as the kindly, old, jolly grandfather type, is sicking his "rating agency" on where ever he can make a bundle (on the down low) or further his liberal agenda. Buffet also owns a controlling interest in the Washington Post (over 25% of equity ownership).
It is perfectly logical, if one understands the logic
Submitted by hayate1 on Tue, 07/19/2011 - 1:27am.
The US debt is the world standard for setting interest rates. It is called the 'riskless' rate. Moodys doesn't rate the debt the same way it rates that of businesses or risky nations. It uses the basic premise that the U.S. gov has the power of taxation which makes the debt essentially backed by the total sum of businesses and individual taxpayers resident here. It is not compared with current expenditure/revenue mismatches nor accumulated debt--to a point, which we are still far from--but to the ratio of tax revenue/gdp.
So, to the point. What is scaring the markets, investors and Moody's is the political brinksmanship with gov obligations. Eliminate that debt ceiling law and the possibility for such idiotic threats of temporary interruptions in gov payment obligations is gone. The the worry in the short term of downgrade is gone. Then interest rates stabilize and continuity is assured.
Get it?
"Facts are not decided by how many people believe them. Truth is not determined by how loudly it is shouted."
Who called you from the White
Submitted by Olivia Smith on Mon, 09/12/2011 - 6:42am.
Who called you from the White House or Treasury to give you your script? Moody’s, rate the UNITED STATES any damn way you please, but Americans are taking their country back. Moody’s, don’t be a party to the TREASON that’s going on with George Soros, Obama, Timothy Geithner, and Bernanke. Just do your job, and give us a rating. How about A+ for courage on the part of the American people? Moody’s is in the with the Hussein group , with Soros and co. That’s pretty obvious to me. There is obviously something in it for Moody’s if they just want us to spend as much as we want. If you were the lender of money to someone who has gone way overboard in spending, and is having a hard time repaying you the cash advance loans, would you actually tell him not to worry, just borrow more? Who the hell is Moody's? We are living in a madhouse. I believe they are not on the side of America but rather are trying to take us down economically, especially in light of this recent advice to do away with a debt ceiling. Only our enemy could recommend this.