[QUOTE=xilman;266359]Full article at [URL]http://www.bbc.co.uk/news/business-14142621[/URL][/QUOTE]
Standard & Poor jumps on the bandwagon.

[URL]http://online.wsj.com/article/SB10001424052702303406104576444003129534580.html?mod=WSJ_hp_us_mostpop_read[/URL]

Paul

[QUOTE=xilman;266467]Standard & Poor jumps on the bandwagon.

[URL]http://online.wsj.com/article/SB10001424052702303406104576444003129534580.html?mod=WSJ_hp_us_mostpop_read[/URL]

Paul[/QUOTE]

Given that both parties are at a brinkmanship stance, it seems appropriate that the ratings agencies jump in (despite their tarnished reputations) in order to prod either side to form an agreement.

Much of the public seem ignorant to the economics or gravity of the situation, many politicians don't seem to accept the economics or gravity of the situation, and the media seem to passively report progress with sparse analysis as they fail to convey the function and importance of fiscal policy in an open economy (whether it be The WSJ or The Economist -- if they won't, who will?).

Fiscal policy permits government the use of two primary tools: Taxes and Consumption (i.e. Spending). To discard the use of either one, given the uncertain, fragile climate we're in, is irresponsible. I'm baffled by Eric Cantor's, and by extension, the Republicans', obstinate stance on taxes.

This "Plan B" is a temporary fix to a larger problem, which like the problems in Europe are continually postponed until they reach emergency levels.

Me before we except after emergency.

8 EU banks failed stress tests.

Guess which nations had problem banks?

5 in Spain
2 in Greece
1 in Austria

And as we already know, France and Germany have huge exposure to Greek debt. Care to bet they also have a big exposure to Spain?

DarJones

[QUOTE=imwithid;266524]Fiscal policy permits government the use of two primary tools: Taxes and Consumption (i.e. Spending). To discard the use of either one, given the uncertain, fragile climate we're in, is irresponsible. I'm baffled by Eric Cantor's, and by extension, the Republicans', obstinate stance on taxes.[/QUOTE]The GOP decided a few decades ago that ideology is more important than reality, for political purposes. Their goal of eliminating all liberal aspects of government require strict adherence to the "Starve the Beast" tax strategy.

Of course, in accordance with one of Karl Rove's dictums, they accuse liberals of doing what they're doing.

For a spectacular example, see their absurd myth that the world's climatologists have conspired to foist a hoax (anthropogenic global warming) upon the world for the purpose of gaining political power, rather than admitting that there is a thoroughly documented right-wing anti-science campaign spreading disinformation about AGW and other scientific issues (e.g., acid rain, evolution, DDT effects on wildlife, link between tobacco use and cancer) whose reality conflicts with right-wing ideology.

Mr Cheesehead, I want my cheese curds from sauk city!

The decision came in 1968 when the liberal half of the democratic party alienated the dixiecrats with civil rights....

[QUOTE=cheesehead;266756]The GOP decided a few decades ago that ideology is more important than reality, for political purposes. Their goal of eliminating all liberal aspects of government require strict adherence to the "Starve the Beast" spending strategy.

Of course, in accordance with one of Karl Rove's dictums, they accuse liberals of doing what they're doing.

For a spectacular example, see their absurd myth that the world's climatologists have conspired to foist a hoax (anthropogenic global warming) upon the world for the purpose of gaining political power, rather than admitting that there is a thoroughly documented right-wing anti-science campaign spreading disinformation about AGW and other scientific issues (e.g., acid rain, evolution, DDT effects on wildlife, link between tobacco use and cancer) whose reality conflicts with right-wing ideology.[/QUOTE]
The Democratic Party decided a few decades ago that ideology is more important than reality, for political purposes. Their goal of eliminating all conservative aspects of government require strict adherence to the "Feed the Beast" spending strategy.

Of course, in accordance with one of Nanci Pelosi's dictums, they accuse conservatives of doing what they're doing.

For a spectacular example, see their absurd myth that the conservatives want to throw granny over the cliff, rather than admitting that there is a thoroughly documented pressing need for reform.

-----

Come on cheesehead. This thread is not about anti-science rhetoric (which is not limited to the GOP, nor heartily endorsed by the GOP as you seem to imply--the current front-running presidential candidate [among many many others] readily admits to the reality of climate change [url]http://www.politico.com/news/stories/0611/56580.html[/url]). It is about the current economic crisis. Claiming that the GOP is acting out of ideological purity rather than reality (and by implication, without concern for the country) is just poison to the conversation (and untrue).

[QUOTE=Fusion_power;266691]8 EU banks failed stress tests.

Guess which nations had problem banks?

5 in Spain
2 in Greece
1 in Austria

And as we already know, France and Germany have huge exposure to Greek debt. Care to bet they also have a big exposure to Spain?

DarJones[/QUOTE]

Mish (citing a WSJ article) has commentary on the latest round of Eurozone bank "stress tests" which, among other hilarities, don`t include defaults on sovereign debt as part of their set of "stress scenarios". There was apparently some provision for haircuts on such debt, but I doubt the haircut scenario was adequately stressful: For example, what if haircuts trigger a CDS-default event, which ripples through the banking system? And as the WSJ piece notes, the banks which failed (and dozens of others) also revealed that they have to residential and commercial RE-loan exposure in places like Spain which in many cases dwarfs their sovereign-debt exposure. There are some huge haircuts coming on those loan portfolios, which were not considered with anything approaching realism in the stress tests:

[url=http://globaleconomicanalysis.blogspot.com/2011/07/details-cast-more-suspicion-on-latest.html] Details Cast More Suspicion on Latest European Bank "Stress Tests"[/url]


On the U.S. debt-ceiling-Kabuki front, one of the more outrageous lies - which not a single mainstream media organization I am aware of seems to have caught - was Obama threatening that "I can`t guarantee those [social Security] checks will go out" if the ceiling was not raised. A dire threat, obviously an attempt to arm-twist: Get SS and Medicare recipients - especially those in Republican districts - up in arms and on the phone to their congressional representatives, telling them they have to raise the debt ceiling in order to keep the checks coming. alas, the threat is based on a factual untruth: In fact, Social Security / Medicare and the debt ceiling are completely separate issues, though the very fact that the government has spent the past 30 years busily raiding both trust funds in order to support ever-increasing deficit spending and make its yearly budget numbers look less dire makes the 2 issues easy to conflate, as the President has done.

[url=http://market-ticker.org/akcs-www?post=189943]Karl Denninger explains[/url]:
[quote]To the peanut gallery that don't "get it": There is zero risk of Social Security and Medicare checks not going out if the debt ceiling is not raised for the next three years.

Got it? Zero.

How? [url=http://www.treasurydirect.gov/NP/BPDLogin?application=np]Here's how:[/url]

That total debt number is the amount subject to the limit, more or less.

But the "Intragovernmental Holdings" is the amount that the Social Security and Medicare trust funds are "owed" by the general fund.

The Treasury can redeem those by selling new bonds into the market in a 1:1 ratio and if they do so they now have dollars in an exactly equal amount.

That's $4.6 trillion dollars.[/quote]
[i]My Comment:[/i] Actually, there are two possibilities as to why the President made his outrageous claim: [1] He is so ignorant as to how these "trust funds" are being run that he fails to understand that Treasury can at any time sell debt obligations in the open market in order to redeem an equal-sized portion of borrowings from the 2 trust funds (in effect take the off-the-books "Intragovernmental Holdings" debt back onto its books), or [2] This is a cynical ploy designed to get the public up in arms and influence the debate. Either possibility is worrisome.

The caveat to scenario [2] is that perhaps Treasury is - justifiably - worried how the bond markets would react to such trust-fund-redemption debt issuance. The Fed has been buying nearly all new government debt for the past year in an attempt to keep interest rates as low as possible, perhaps the last thing they want to do is to let the global bond markets actually have a chance to let them know what they think of this giant debt-Ponzi scheme.

Now, the Republicans are far, far from blameless in the current debt-ceiling stalemate themselves - Even when the President and key democratic leaders recently offered to give way on one of their sacred cows and consider raising the age limits for the trust funds in order to restore them toward long-term solvency, the Reps. stubbornly refused to yield one inch on their holy of holies, the perpetuation of the Bush-era tax cuts for the rich, and the closing of loopholes which allow huge multinationals like GE, Google and the TBTF banks to escape paying nearly all of their federal corporate taxes. (GE routinely gets multibillion-dollars *refunds* at the same time it makes massive profts). So, plenty of scumbaggery to go around on both sides.

I apologize for inserting a off-topic, non-economic, comment (my third paragraph above) in this thread, and will endeavor to keep other topics in other threads.

[url=http://www.bloomberg.com/news/2011-07-19/u-s-house-set-to-pass-doomed-spending-cut-bill-with-no-debt-deal-imminent.html]Obama Embraces Deficit-Cutting Plan of Gang-of-Six Senators[/url]
[quote]President Barack Obama embraced a $3.7 trillion debt-cutting plan by a bipartisan group of senators that would combine tax increases and spending cuts, saying it could offer a way out of the congressional deadlock over raising the U.S. borrowing limit.

“We now are seeing the potential for a bipartisan consensus,” Obama said today at the White House. He called the proposal by the so-called Gang of Six “broadly consistent” with what he has sought and “a very significant step” in so far fruitless negotiations between Republicans and Democrats over boosting the nation’s $14.3 trillion borrowing authority before a threatened default on Aug 2.

At the Capitol, the bipartisan group led by Republican Senator Saxby Chambliss of Georgia and Senator Mark Warner of Virginia pitched its plan for an immediate $500 billion in spending cuts followed by a longer-term effort to force bigger reductions and $1 trillion in tax increases. The plan calls for lowering tax rates and limiting the growth of entitlement programs such as Medicare and Social Security.[/quote]
[i]My Comment:[/i] [strike]Gamblers` Anonymous[/strike]The equity markets had multiple risk-asset-chasing orgasms yesterday over the early reports about this. I agree with [url=http://globaleconomicanalysis.blogspot.com/2011/07/obama-embraces-deficit-cutting-plan-of.html]Mish[/url] and [url=http://market-ticker.org/akcs-www?post=190351]Denninger[/url] that any "plan" that may results from this is highly likely to be the usual smoke-and-mirrors, watered-down-and-backloaded-into-meaninglessness exercise in fig-leaf-to-give-ourselves-an-excuse-to-go-deeper-into-debt-ology. Think of it this way: Even if our corrupt, feckless DC pols actually managed to come up with a plan that cuts $400Bln per year starting right now (both of those propositions are laughable, but just for shits and grins here), that would cut the actual (not the phony "claimed by Treasury") run rate of U.S. debt increase, which is currently on track to hit somewhere between $1.6-2 Trillion year-over-year, by around 20%. So even under this wild-eyed optimistic scenario, we would be digging ourselves deeper into debt at a rate of "only" around $1.2-1.6 Trillion per year. Based on longstanding experience with these kinds of "budget reform efforts", the real reductions in debt-issuance are much more likely to be in the 0-5%-of-current-yearly-shortfall range. Madness.

The key question is, will the ratings agencies roll over as they have done forever and anon? After thoroughly disgracing themselves during the late, great housing bubble, S&P and Moody's have shown recent signs of actually doing their jobs, and both have stated that without real, credible, deep budget-balancing steps, they will downgrade U.s. debt even if the debt ceiling is raised. Let`s see if they have the stones to do so. (I seriously doubt it, but it would be exceedingly interesting to be proved wrong on this point).

[QUOTE=ewmayer;267037]After thoroughly disgracing themselves during the late, great housing bubble, S&P and Moody's have shown recent signs of actually doing their jobs, and both have stated that without real, credible, deep budget-balancing steps, they will downgrade U.s. debt even if the debt ceiling is raised. Let`s see if they have the stones to do so.[/QUOTE]Why not? They'd love to regain some credibility. Triggering an historic quake in the bond market would do a lot for that.

To what sort of future revenge might S&P or Moody's be vulnerable after issuing such a downgrade?

[QUOTE=cheesehead;267056]Why not? They'd love to regain some credibility. Triggering an historic quake in the bond market would do a lot for that.

To what sort of future revenge might S&P or Moody's be vulnerable after issuing such a downgrade?[/QUOTE]

Several possibilities occur to me:

[1] Government strips them of their [url=http://en.wikipedia.org/wiki/Nationally_Recognized_Statistical_Rating_Organization]NRSRO[/url] status, costing them business in a big way;

[2] Justice Dept starts doing (its* job and going after the Big 3 ratingshouses (especially the big 2, Moody's and S&P) for their racketeering-style securitization-fraud in the housing bubble;

[3] Congress introduces legislation which mandates that ratings agencies revert to the pre-bubble practice of being paid by prospective buyers of structured-debt, rather than by the issuers. (A.k.a. no more ratings-whoring-for-pay.) Again, big hit to the bottom line.

[4] U.S. joins European politicians in supporting a moratorium on ratings agencies ratings of sovereign debt. (How they would 'enforce' this unilaterally being the riddle here, since prospective buyers of sov-debt would still be quite interested in such ratings.)