Now the U.S. is AA+ according to S&P

[scorpioncapital]

By this definition, bankruptcy doesn't exist for anything, individuals, corporations or governments. I can never be bankrupt because I can renegotiate my loan terms to 50 years instead of say 5 or negotiate not to pay any of my debts as I don't have the money.

 

 

[ERICOPOLY]

By this definition, bankruptcy doesn't exist for anything, individuals, corporations or governments. I can never be bankrupt because I can renegotiate my loan terms to 50 years instead of say 5 or negotiate not to pay any of my debts as I don't have the money.

 

Yes, bankruptcy does exist for individuals if the lenders won't agree to renegotiate.  Same for corps.

[scorpioncapital]

and same for governments :)

[ERICOPOLY]

and same for governments :)

 

You pointed out earlier that a government can print money.  So if nobody will renegotiate, everyone can still get repaid in full.   They will never miss an interest payment involuntarily -- and that's where the credit rating downgrade comes from, the fact that people in government expressed the possibility of voluntarily defaulting as a lever used for political gain.

 

 

[vinod1]

Ratings agencies as a policy in general and historically in practice have limited a corporations debt ratings to its country's credit rating. The basic theory is that the corporation is dependent on the country's legal/institutional framework and therefore never a better credit risk than the country itself. (Dusting off old CFA notes :) )

 

S&P and Moody only make specific allowances i.e. under particular circumstances where a corporation has higher rating like a multinational that has the support of a parent company with a higher rating.

 

Vinod

[Parsad]

Sanjeev,

 

Canada is AAA rated according to S&P website.

 

Cardboard

 

Sorry Cardboard!  Shows how much I know about credit ratings.  Also shows how much I pay attention to them!  ;D  Cheers!

[Myth465]

Interesting Take.

 

http://www.gurufocus.com/news/141278/the-downgrading-of-americans

[Cardboard]

Here are the 16 still in the AAA club for whatever it is worth.

 

http://money.cnn.com/2011/08/06/news/international/sp_rating_countries_with_aaa/index.htm?iid=Lead

 

Also, another interesting article that I found today regarding the Chinese take on all of this.

 

http://www.cnbc.com/id/44043828

 

"China also urged the United States to apply "common sense" to "cure its addiction to debts" by cutting military and social welfare expenditure."

 

IMO, social welfare expenditure seems to be a common problem to all developed nations. It is hard for me to comprehend how a nation offering safety nets for its out of favour citizens can compete with others who offer next to no benefits to its citizens. At some point, there is a cost for empathy and it goes into the country's debt load and ultimately against its "cost of goods sold". It cannot be that different from analyzing competing companies.

 

The sadness of the system is that even if we want to do good (assuming that we can eliminate all abuses which sounds like explaining part of the failure of communism), we can't because someone, somewhere isn't in this interconnected global economy.

 

The other quote that I find perplexing is the following:

 

""China will be forced to consider other investments for its reserves. U.S. Treasuries aren't as safe anymore. There is a class of assets out there that are more risky than AAA, but less risky than AA+. "

 

What is that? AAA rated things like Microsoft, but that are not nations?

 

Cardboard

 

[Hoodlum]

I was surprise to see France in that list.

 

Here are the 16 still in the AAA club for whatever it is worth.

 

http://money.cnn.com/2011/08/06/news/international/sp_rating_countries_with_aaa/index.htm?iid=Lead

 

[Uccmal]

American fear of taxes boggles my mind.  In Canada we are paying the equivalent of 4.80 US a gallon for gas more or less.  I was just in New England (greater Boston) and gas prices were at least $1.00 difference than at home.  That dollar is tax.  Based on the Us automobiles using 40 gallons/barrel * 15 million gallons of gas per day an additional tax of $1.00 per gallon would raise 200 B per year.

 

My point is that there are plenty of ways to raise the money from a general Value Added Tax.  Believe it or not the economy adjusts.  Value added taxes as much as I hate them do less economic damage because they tax consumption rather than individuals.

 

What the US needs is real political leadership, not game playing.  Someone needs to stand up and say we are rasing taxes for the good of everyone. 

[Valuebo]

American fear of taxes boggles my mind.  In Canada we are paying the equivalent of 4.80 US a gallon for gas more or less.  I was just in New England (greater Boston) and gas prices were at least $1.00 difference than at home.  That dollar is tax.  Based on the Us automobiles using 40 gallons/barrel * 15 million gallons of gas per day an additional tax of $1.00 per gallon would raise 200 B per year.

 

 

Lol, that $4.8/gallon is still low compared to Europe, thats 0,887€/liter. Here in Belgium we pay 1,64-1,67€/liter nowadays.

 

Taxed to the max!  8)

[biaggio]

"My point is that there are plenty of ways to raise the money from a general Value Added Tax.  Believe it or not the economy adjusts.  Value added taxes as much as I hate them do less economic damage because they tax consumption rather than individuals.

 

What the US needs is real political leadership, not game playing.  Someone needs to stand up and say we are rasing taxes for the good of everyone.  "

 

I was thinking the same thing. I live in Canada

 

Nobody likes to pay taxes. Myself included.

 

They argue that taxes will stall economic growth.

 

The best way to get someone to do what you want, is to get them to want to do what you want.

 

My understanding is that whatever you tax you will have less of.

 

Why don t they increase tax on things they want to decrease? Examples:

 

-Energy consumption

-hazardous life styles (value added tax to all fast food, junk food, cigarettes, alcohol...sad thing is that people will still probably pay, but at least you can recoup the health care costs)

-short term investments (how about a very small VAT on derivatives, high frequency trading, naked shorts...)

 

-I think they need to start charging other countries for defending,+  protecting them i.e they need to start sharing in the cost

 

Eventually-cut taxes for real personal income. Encourage people to work hard. In Canada you pay a higher tax % of income the more you make-it does not make sense,

 

              -Cut taxes or give some sort of credit for companies creating jobs

 

There is no free lunch. The free market is a wonderful thing. It eventually gets us to do what we must do.

[biaggio]

just listening to CNN.

 

Israel market open on Sundays. I did not know that. Talk about working hard.

 

Israel market is down 5% today (sunday).

[Liberty]

Israel market open on Sundays. I did not know that. Talk about working hard.

 

They're probably closed on Fridays, though. IIRC, the weekend over there is Friday and Saturday.

 

http://en.wikipedia.org/wiki/Workweek_and_weekend#Israel

[biaggio]

Liberty, makes sense, thanks.

[Myth465]

Israel is also having massive protests...

[SharperDingaan]

Keep in mind:

 

The risk free rate is the lowest cost of funds for all borrowers in a sovereign state – because the least risky credit is usually the sovereign itself, it is usually the sovereign cost of borrowing.

• Corporations within the sovereign can have better ratings than the sovereign itself (common during many of the various Latin American debt crisis)

• The risk free rate is not the same for each sovereign (Germany is less risky than Greece)

Increase the sovereign cost of borrowing, & you increase the cost of borrowing for most of that sovereign’s citizenry. The US either cuts more spending, or raises taxes, to cover its additional cost of borrowing.

 

But the USD is also the global reserve (store of value) currency. The whole world has to buy USD denominated debt to store its surplus, & it buys the debt of the least risky credit in that USD denomination. The least risky USD denominated credit has to be AAA, it has to be able to issue enough debt to absorb the world investment demand, & it gets to borrow at the lowest cost of all sovereigns - & set the base cost of borrowing for all other sovereigns.

• When other USD denominated debt issuers (sovereigns, corporations) have better ratings than you do, the world goes to them first - & only comes to you if those issuers were not able to issue sufficient quantity. If you can get refinancing - your (& every other sovereign with your rating or worse) cost of refinancing goes up (crowding out). 

• Drop too many ratings, & there are so many better credits ahead of you that you have to outbid competition through rising premiums.

Lose reserve status & US unemployment rises. Assuming something approaching the unadjusted 9.5% Eurozone average http://www.bls.gov/ilc/intl_unemployment_rates_monthly.htm, applied to the existing 9.1% rate & 310M US population – about another  1.3M people (+ another 1.5M for every .5% spike in the US unemployment rate).

 

Obvious opportunities, but the long term solution is probably the SDR (Special Drawing Right) as the global store of value, & relegation of the USD, Euro, etc to regional trading currency. Risk calibration returns to ‘normal’, spendthrifts pay their freight, & savers (retirees) earn enough interest on their deposits to retire on (a primary retiree problem in most western nations).

 

The debt limit theatre has demonstrated to the world that the US is incapable of making the societal decisions necessary, & that change is highly unlikely for at least another year.  The world is done being held captive, & is moving on. 

 

May we all never have to experience it again.

 

 

SD

 

[username]

Israel is also having massive protests...

That's right. There's a really bad sentiment towards some of the companies in the TA25 these days (7 pct. down today).

All in all, I've had much (much) more intensive days adjusting derivative positions.

[Myth465]

Israel is also having massive protests...

That's right. There's a really bad sentiment towards some of the companies in the TA25 these days (7 pct. down today).

All in all, I've had much (much) more intensive days adjusting derivative positions.

 

LOL you and me both......

[txlaw]

IMO, social welfare expenditure seems to be a common problem to all developed nations. It is hard for me to comprehend how a nation offering safety nets for its out of favour citizens can compete with others who offer next to no benefits to its citizens. At some point, there is a cost for empathy and it goes into the country's debt load and ultimately against its "cost of goods sold". It cannot be that different from analyzing competing companies.

 

The sadness of the system is that even if we want to do good (assuming that we can eliminate all abuses which sounds like explaining part of the failure of communism), we can't because someone, somewhere isn't in this interconnected global economy.

 

I'm not sure I agree with you here.  I think there is a way to create social welfare systems that actually make countries more competitive than places without them.  The insurance function of these publicly provided welfare systems allow individuals to better realize their potential and add value to society in a more optimized way.

 

The problem, however, in my opinion, is that most developed nations have a pay as you go system, rather than a fully funded system, and that there is a tendency to provide benefits in a way that does not actually bolster the economy-boosting insurance function (e.g., exorbitant Medicare benefits like the prescription drug payment plan).

[Partner24]

berkshiremistery,

Thank you for posting. I've seen your posts over the years and they are very informative. Your chart say it all. I see that you are a "newbie" in this new message board. But, to me, you're a "hero member" since you posted a lot of posts with wisdom in them. I hope that you'll post more often.

 

Sanjeev,

 

To me, the key to our countries (US and Canada) is mostly not selective immigration. The key is to keep people that are here motivated, innovative and energic and to keep the great values that has built our country, whatever where they come from.  Most of us (value investors) are conservative in nature. As value investors, we ask for a margin of safety, but America has been built with people who put their balls on the table because they believed in what they wanted to build. I come from a small town of business builders and that create jobs and wealth. We need people like that.

 

As to S&P rating,

 

they just...rate things, they are just like critics...they do not build the show. That being said, I do agree with their yellow flag. As a country, you have revenues and you have expenses. You need to focus on both responsibly. Some US politicians will have to take note and realize that an income statement comes with revenues and expenses and both are important.

 

Cheers!

[Smazz]

I'm downgrading the S&P  ;D ... This from someone who their downgrade will help me short term because i have so much cash as %.

 

 

Sorry, if these guys were worth their salt  they wouldnt have slept through what others (Like Prem) was writing warnings about for years.

 

[Zorrofan]

If you compare tax rates in the US today to what they were in the 1950's, taxes today are lower. And yet the 1950's were an era of prosperity. Makes it hard to argue that sensible tax reform will prevent economic growth. Unfortunately Biaggio you are using common sense, something that seems to be in short supply in Washington these days....

 

cheers

Zorro

 

"My point is that there are plenty of ways to raise the money from a general Value Added Tax.  Believe it or not the economy adjusts.  Value added taxes as much as I hate them do less economic damage because they tax consumption rather than individuals.

 

What the US needs is real political leadership, not game playing.  Someone needs to stand up and say we are rasing taxes for the good of everyone.  "

 

I was thinking the same thing. I live in Canada

 

Nobody likes to pay taxes. Myself included.

 

They argue that taxes will stall economic growth.

 

The best way to get someone to do what you want, is to get them to want to do what you want.

 

My understanding is that whatever you tax you will have less of.

 

Why don t they increase tax on things they want to decrease? Examples:

 

-Energy consumption

-hazardous life styles (value added tax to all fast food, junk food, cigarettes, alcohol...sad thing is that people will still probably pay, but at least you can recoup the health care costs)

-short term investments (how about a very small VAT on derivatives, high frequency trading, naked shorts...)

 

-I think they need to start charging other countries for defending,+  protecting them i.e they need to start sharing in the cost

 

Eventually-cut taxes for real personal income. Encourage people to work hard. In Canada you pay a higher tax % of income the more you make-it does not make sense,

 

              -Cut taxes or give some sort of credit for companies creating jobs

 

There is no free lunch. The free market is a wonderful thing. It eventually gets us to do what we must do.

[Packer16]

One aspect about the safety net not mentioned is the private aspect of it in the US.  The larger the private amount, the less gov't provided safety net is required.  An interesting idea for tax reform is to provide a tax deduction for private safety net programs (Salvation Army, etc.) but limit other chartable deductions.

 

Packer

[ERICOPOLY]

but limit other chartable deductions.

 

Packer

 

I get a tax deduction for funding scholarships in Nicaragua.  Buffett and Gates have reduced their taxable estate by giving it to the rest of the world.

 

Somebody still has to pay for things here in the US.