<p>It’s rather amusing to watch the US dollar steaming higher this morning. Never underestimate the power of central bankers. Markets are down but they are holding. I’m sitting this one out for now.</p>
<p>I know several Senators and Congresspeople and can affirm that many of them do not know the first thing about the financial markets and economics, some ask, some don’t. Remember, your Congressperson is your next door neighbor by nature of their districts. Where I’ve lived we’ve had a flower shop owner, a rock musician, and an opthamologist as our representatives in Congress, financial knowledge, not so much.</p>
<p>My personal solution - infrastructure. Have the government spend millions to rebuild our roads and mass transit. It will put a solid middle class unionized population back to work and then that will be the start of a trickle all around prosperity! Not to mention much needed improvements across the country.</p>
<p>We are already building lots of infrastructure.</p>
<p>In Afghanistan.</p>
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<p>And where to get US and Canadian fish.</p>
<p>Vicariousparent, you can make fun of what I said all you want, but I think that civilized discussion of substantial topics like the economy is an important part of the cafe. It shows the youngsters that their parents CAN talk about things that matter for ALL of us (even the “poor” folks who claim to be unaffected by the financial markets) without name calling and ripping each other’s throats. That’s all. :)</p>
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<p>And that’s the crux of the matter, isn’t it? Our problem is not that we don’t have enough money; we are a very, very wealthy nation. It’s the fact that we do everything with that money except improve our own society that leads us into bankruptcy even as our schools get worse, our bridges crumble, and illegal immigration continues unabated.</p>
<p>S&P has lost credibility, again.</p>
<p>Vix is still “only” 38</p>
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<p>I am only half kidding when I say that S&P downgraded us for the same reason the mods shut down the Political Sub-Forum. </p>
<p>We are afflicted by a particularly virulent form of political extremism in our country so that any discussion about a topic with political dimensions degenerates into pointless finger-pointing and name-calling with people just trying to score points. This is all great for TV ratings but it comes in the way of finding solutions to work our way out of a difficult situation, financial or otherwise.</p>
<p>Mini-</p>
<p>I am no supply side economist, and not a fan of the Bush tax cuts, but the debt ceiling would have had to be raised even if the Bush tax cuts expired, for the simple fact that the budget deficits are well above a trillion dollars right now (I think 1.4 trillion, depends on who you talk to). Letting the Bush tax cuts expired would trim that deficit, there is no doubt about that, but even let’s say it brought in 400 billion dollars, we still would be borrowing 1 trillion this year…As long as we are running budget deficits, we are borrowing, pure and simple, and will reach the debt ceiling limit.</p>
<p>As far as S and P goes, no, there isn’t criminal collusion in this case, though you could argue that S and P’s ratings are not always so accurate. S and P and Moody’s totally screwed up with the CDO debacle, their ratings of these instruments for risk turned out to be total fantasy, they had no clue as to what the real risk on these were, yet they kept rating them at relatively high levels (the CDO’s, for those who don’t know, were the financial instruments behind a large part of the 2008 meltdown; collateralized debt obligations, or CDO’s, basically represent a slice of thousands of mortgages, they basically buy mortgages from originating banks and then 'collateralize them into a form of debt instrument). These instruments contained thousands of mortgages and no one really knew how to value them, not to mention that many of the mortgages backing them were risky mortgages, not standard 30 year mortgages. Among other things, S and P and Moodys both used traditional default rates on mortgages to determine the risk of these instruments and that was a ridiculous assumption to make, since many of the mortgages were not traditional ones, they were all kinds of hare-brained loans. </p>
<p>As far as collusion, S and P and Moody’s have a fundamental conflict, in that they are paid by people putting out instruments to rate their debt, and they have the problem that if they anger a client by rating their stuff poorly, the client could stop doing business with them (it is kind of like car magazines whose prime advertisers are car companies; if they called a car a piece of crap, the company would likely retaliate by cutting advertising spending). Not criminal or illegal, but there is a fundamental conflict there.</p>
<p>I suspect S and P, because they got so burned with the CDO mess, probably decided to downgrade US debt to show that they are ‘on the ball’, a lot of those complaining that S and P jumped the gun these days, probably secretly are saying “it’s about time”</p>
<p>“Vix is still “only” 38”</p>
<p>Hmmm…It looks like the buy/write clubs are going to have fewer members…</p>
<p>It has happened before and it will happen again. When things get exciting like this, I start reading the history books. We are a generation away from working together, living together, helping each other out. Because that is how our ancestors survived. Shame on us all.</p>
<p>I have a terrible feeling that I will regret not jumping into the stock market today with the cash I’ve been keeping on the sidelines.</p>
<p>The active traders that I’m watching trying to scalp long aren’t doing very well today.</p>
<p>Talk about shooting yourself in the foot:</p>
<p>[Shares</a> of S&P parent company fall - Yahoo! Finance](<a href=“http://finance.yahoo.com/news/Shares-of-SampP-parent-apf-1578352862.html?x=0&sec=topStories&pos=7&asset=&ccode=]Shares”>http://finance.yahoo.com/news/Shares-of-SampP-parent-apf-1578352862.html?x=0&sec=topStories&pos=7&asset=&ccode=)</p>
<p>I hope their compensation package includes LOTS of (now underwater) stock options. Just kidding.</p>
<p>What is interesting is that Moody’s, the other big ratings agency, has kept the US at a AAA rating and they stated why, among other things, that the US debt, while it need to come down, is not at crisis levels as it is in other countries. More importantly, they said that the nature of the US economy, its diversity and uniqueness, means that it is likely that the US will be able to get the debt under control.</p>
<p>The other thing to keep in mind is whatever the US’s troubles, what currency is going to replace the dollar as the base currency? People put money into US treasuries as a place to park reserves of dollars, what is going to replace it? The Euro is in worse shape then the dollar, the Yen is in major decline…The Chinese Yuan? Would you put your reserves in a currency whose value is decided by the government, and who in effect deflates it value routinely below market value to keep their products cheap? India, with its own problems with ineffective government and its own problems to solve? Russia (world biggest kleptocracy)? Where do you put it? (These are my thoughts, but Moody said basically the same thing).</p>
<p>As far as the world coming to an end, this is nothing compared to 2008, or even 1987, both of which saw major selloffs. Remember, the dow is still above 10,000 and there is resistance to further declines; at its low, the dow hit 6500 in 2008, which few are saying we are going near. Markets react to uncertainty, they react to all kinds of things, but that moves both ways.</p>
<p>The fact that the dollar is the reserve, fiat currency does indeed make this situation different. I think (subject to correction) that fact, in combination with the slow motion economic collapse of the world’s largest economy, is unique in history and puts us in uncharted territory.</p>
<p>A guy I work out with told me several weeks ago that he bought BAC around $10 - how low could it go? I don’t follow the bankers and I just said that BAC had a cloud over their heads. He said that it was a long-term hold.</p>
<p>I asked him what the price was today and he said $6. That’s a big ouch!</p>
<p>Vicarious (re: post #154)</p>
<p>There was a time when I felt like you do … “market’s down big today, gotta buy.” Doing that will make you a little money, but it will also give you some sleepless nights. As a sanity check, go check price charts for the last five or six major declines. With the (possible) exception of the 1987 crash, buying in the heat of the decline was not an optimum strategy. If you REALLY feel you need to get in, consider dividing your available cash into four or five pots and putting just one pot in. It’s possible today was the bottom … long odds surely, but it is possible.</p>
<p>From Reuters this afternoon: “Still, a top Moody’s analyst reiterated that the United States is running out of time to reduce its debt burden before his company, too, would downgrade the country’s debt.”</p>