S&P's $2 Trillion Math Mistake 1040
Last friday Moody's S&P announced that they had downgraded the U.S.'s credit rating (leading to a pretty huge discussion on Slashdot I might add). Since then more interesting news has come out, suraj.sun writes "In a document provided to Treasury on Friday afternoon, Standard and Poor's (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake. After Treasury pointed out this error — a basic math error of significant consequence — S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one. S&P incorrectly added that same $2.1 trillion in deficit reduction to an entirely different baseline where discretionary funding levels grow with nominal GDP over the next 10 years. Relative to this alternative baseline, the Budget Control Act will save more than $4 trillion over ten years — or over $2 trillion more than S&P calculated. S&P acknowledged this error — in private conversations with Treasury on Friday afternoon and then publicly early Saturday morning. In the interim, they chose to issue a downgrade of the U.S. credit rating."
Pack of LIES (Score:3, Insightful)
More lies...the debt will INCREASE by almost 8 trillion over the next 10 years. And probably more than that I can guarantee you! The S&P should have downgraded us a loooonnnggggg time ago.
And sorry it is no ones fault but ours.
Re: (Score:3, Insightful)
It's not my fault that every damn candidate is a corporate cock sucker.
It's also not my fault that the corporate owned media system is never going to let fly someone waltzing in and pushing their little cozy community out into the cold where it belongs.
All it takes is a little scandal and even the most angelic of candidates will find themselves stained with some outlandish smear that enough John Q. Publics will run away from, leaving
That same corporate media engine will also make sure that John Q. Public is
Re:Pack of LIES (Score:4, Insightful)
It's not "the rich" who caused the problem. Asking "the rich" to pay more doesn't really address the root cause and will only be a band-aid on the sucking chest wound that is the economy.
The people who should pay up are the ones who got a trillion dollar taxpayer bailout and are now busy awarding themselves billion dollar bonuses for doing such a great job bankrupting the economy.
Then after they've paid up ... boot the parasitic bastards out of the system.
Re:Pack of LIES (Score:4, Interesting)
Nah, I think we need tax reform more than anything. Every other time in history we've raised taxes in war time to pay for it; that is, until Bush II comes along, he does the opposite, goes to war and lowers taxes. Add to that idiocy the enormous amount of speculation going on, the obscenely low tax rates on income from hedge funds, and the fact that multi-billion dollar corporations not only pay no effective tax at all but collect checks from the government in the form of refunds...
Sorry, but let's cut the bullshit. All this talk about raising taxes on the wealthy "killing small business" is crap. Something like 80% of businesses in this country bring in less than $75,000 a year, the statistics are all on the various government agencies that do the reporting. All this crap about taxes "hurting business" is just more emotional game playing. Then we hear about how it's all a liberal agenda to foster "class warfare", c'mon, we're already at war. It's the problem of the corporate mentality...no system can grow indefinitely. But the corporate cycle demands growth every single quarter, as do the investors in our economy. But that's unsustainable...and current events show this to be true. Business is hitting the point where there is very little wealth left for them to suck up and now they are simply looking for more creative ways to suck.
Atlas is shrugging, all right, but it's not the wealthy that are shrugging, it's the poor, who as they get more desperate are going to start reacting with force. It's a historical inevitability. Crime is going through the roof all over the U.S. and it's because there is no opportunity. For all the "stimulation" of Big Business the tax payer has been paying for none of the fucking wealth is trickling down. The businesses are sitting on it, the largest companies are all sitting on record amounts of cash both here and abroad. Meanwhile, they're laying people off and then crying how the little in taxes they do pay is hurting them and they need more of a break. Yeah, right.
Ayn Rand was just another person trying to justify to the masses why it's okay for one person to have more wealth than they could spend in 100 lifetimes while others starved outside of the gates of their compound. It was disingenuous then and it's disingenuous now. We've got 30 years of "Trickle Down" and nothing to show for it but more debt and social problems. Time to give "Trickle Up" a shot now...that is, if they're not afraid of actually having to compete again...
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All this talk about raising taxes on the wealthy "killing small business" is crap. Something like 80% of businesses in this country bring in less than $75,000 a year, the statistics are all on the various government agencies that do the reporting.
Man, don't even frame it that way, you're already inside the lies.
It doesn't matter how much small businesses bring in. The wealthy's income taxes has nothing to do with how much money businesses have.
The wealthy own, or are employed by, businesses. The only w
Re:Pack of LIES (Score:4, Insightful)
The poor? Those guys with government housing, free health care, food stamps, welfare, WIC and government cheese? The guys with a PS3 and an Xbox on their 42" LCD TV?
You know, it amazes me how many people think being poor is just so awesome...
As someone that's actually been poor and lived in the projects, (really poor, not "my parents can't afford to buy me a car for my 16th birthday" poor) that's a bunch of crap. More right-wing propaganda to justify their moral bankruptcy and not being satisfied with what they have, nor grateful that they are successful enough not to be in that position. I went to sleep every night listening to gun shots, police sirens, dogs barking, and helicopters, watched families get torn apart by drugs as they sought some escape from their dismal existence, seen fist-fights break out over job openings at McDonald's and Walmart because there's nowhere else to work. Yeah, that sure is an awesome lifestyle. Highly recommend it...if you want to grow up without a childhood.
Meanwhile, the right finds that one guy out of a thousand that made it out and broke the cycle and holds him up as being some sort of proof that anyone can do it, conveniently ignoring how ridiculously lucky that guy really was. Throw 1,000 darts at a dartboard and you're probably going to get a bullseye, but that doesn't count for shit when the other 999 are embedded all over the bar.
While I agree wholeheartedly that our government is ridiculously corrupt and that the people of this country no longer have representation (unless they make $250,000+ or are one of those new "people", i.e., a major Corporation), I don't think we need to leverage our financial solvency strictly on the backs of the poor and disadvantaged. Cutting these social programs isn't going to effect the crack dealers and hustlers in the ghetto, it's going to hurt the kids, the elderly, and the infirm. The kids that the right all professes to care about when they're railing against Planned Parenthood, they're the ones that are going to go hungry. What the hell did they do to deserve their lives? They were born to the wrong mother and father so screw 'em, that's what they get for being poor? Yeah, right...
But, by all means, keep talking about that awesome welfare existence. It helps identify those that truly have no clue what they're talking about...
Re:Pack of LIES (Score:5, Interesting)
You mean those crime-ridden hell-holes that your wise and benevolent government built for you as part of the myriad of social programs that you're vehemently arguing against cutting?
Yeah, those ones, because (and I'm sure this is going to blow your mind) it is still better than being homeless and living in a car, or on the fucking street. Where do you think these people are going to go? Oh, right:
the alternative isn't poor people starving and dying in the streets, it's poor people getting married to support their children in low-cost private housing, instead of being raised by government-subsidized single mothers only to become bastards who commit rape, robbery, murder, and other mayhem.
Really? It's that simple?! Oh my God!! Hey guys, looks like Mike here solved the problem with poverty in the US, we just need to pair them up and make them get married, then they will magically have all the means to raise those kids just fine without any assistance! We'll just put them in all that low-cost private housing! You know, all those decent neighborhoods filled with benevolent landlords that are waiting to receive all the people from the projects with open arms? How could we forget about them?!
You have no concept of what you speak of. The vast majority of the people in those situations didn't choose to be there, they ended up there due to circumstances outside of their control. With all the stories of people losing their homes and shit, with all the people getting laid off, are you seriously still holding to that ridiculous notion that only the dregs of society and the undeserving are desperate or on government assistance? Have you ever actually met a poor person, or do you just see them on TV and read about them in the paper?
The biggest tragedy is all the people calling for the end to social security. In civilized cultures the elderly are revered and taken care of because they raised us and everything we have today was built upon their hard work and sacrifices when they were our age. They take care of them because they fucking deserve it and because it's the morally right thing to do. Anyone that's calling for those cuts, go down to Walmart and look at that 80 year old people greeter that is handing out shopping carts and struggling with stickers due to their arthritis. Really look. If you can do that and not be completely ashamed, then you are a far colder man than I, and frankly, if that's the type of society you want to live in where we can't even take care of our forebears, then I want no part of it.
I mean, what the hell did we spend all these billions defending our country if we can't even take care of our own? We have fucking veterans sleeping under bridges. We can't even take care of the people that risked their lives to defend the country that made these assholes rich and they're supposed to "tighten their belts"?!
Man, what I would give just to lock a group of millionaires in a room with those "bastards" and have them justify why they can't pay a few more percentage points a year in taxes...I bet they could suggest a few ways they could trim their budgets without fucking over the disadvantaged...
Re:Pack of LIES (Score:5, Insightful)
I'm not gonna bother picking out each assertion you made and responding to it like you did, but the reason why we do not allow things to revert to how they were at the birth of the industrial age when there were no social programs whatsoever is because it is in the interests of the greater good to provide these basic things.
The alternative is to end up with situations where you have large quantities of street rats banging on car windows at every intersection in every major city in the US, crime skyrocketing, property values plummeting, urban blight, disease due to poor living conditions and malnutrition. Basically, look at how the poor live in Mumbai or Rio, or hell, even here in the US in cities like Detroit and Cleveland. Those people are getting assistance and look at how bad off those areas are. Can you even imagine what it's gonna look like when they're cut off? Detroit is gonna burn to the ground.
Now, I'm sure I'll get some sort of "so?" response to that, or how it's their own fault for being lazy, or whatever the hell sin they committed to end up poor (since nobody has ever had problems outside of their control, like illness or job loss), but regardless, getting them aid is better than playing the "survival of the fittest" game that you seem to be championing for. This isn't a third world country; there are plenty of them to choose from if that's what you're looking for. Hell, I bet your money will go pretty damn far there, too, and I doubt there'd be too many tears shed if more like minded people followed suit, but that's not the type of country that so many people have given their lives defending.
Re: (Score:3, Informative)
The current debt bill cuts $350 to 450 billion per year in defense spending. It's hard to get an exact number as they label it under security spending. The Pentagon chief is freaking, so clearly something is happening.
If you paid any attention what was happening, they did talk about cutting defense, a lot.
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Actually, like everything else, Defense spending under the current bill is not being CUT, it's being "increased more slowly".
On the plus side, maybe we can get back to the pre-WW2 level of a strong Navy coupled with an Army which is barely more than a cadre. That'll help keep us out of these little bush league wars, if it takes us a couple-three years to build up the Army to the point we can fight them...
Social Security as retirement fund (Score:5, Insightful)
Intended or not, corporations saw Social Security as a excuse to drop employee pensions (and take the difference as profits). At one time, even "menial" workers got decent pensions as part of their employment package. After 30 years of downsizing, rightsizing, off-shoring and union-busting, most people's only options for retirement are to gamble what little savings they have on the stock market (we all know how that worked out) and fall back on Social Security for the rest. The problem is not the "entitled" poor and retired, it's the entitled corporations who have sucked this country dry and given nothing back.
Re:Social Security as retirement fund (Score:5, Insightful)
> Intended or not, corporations saw Social Security as a excuse...
Sorry to rain on your progressive emotion based rant but have you considered a reality based rationale? If the Feds are raking off ~15% for SS, another couple of points for Medicare, another few points go into various other funds before we even start talking about withholding actual income taxes, there isn't any budget left for a company pension plan. And don't forget medical. And in today's more changing world people don't work thirty years for the same company. These days many companies don't last thirty years. Having your paycheck AND pension tied to the longterm health of a single company probably isn't the smartest thing to do.
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Yet another person placing the blame for the US economy on the people living in the ghetto and the elderly...
There's a reason for those social programs, and that reason is the greater good. Cut welfare and social security and all of that and you know what we end up with? Groups of kids banging on car windows at every light begging for money. Rampant disease due to poor living conditions and malnutrition. Entire neighborhoods that are run by drug lords and gang bangers with no police presence whatsoever.
doesn't make much of a difference (Score:5, Interesting)
regardless of the math, S&P's reasoning is sound. let's not try to find scapegoats, please. the U.S. is hurtling at full speed towards a deficit meltdown, and quibbling over S&P's math doesn't change the fact that the country needs to come to terms with it ASAP.
Re: (Score:3, Insightful)
No, you see... the point here isn't to make a well-reasoned argument, rather they are trying to link the 'error in calculation' to somehow mean the S&P downgrade is faulty.
IIRC, the 'math mistake' they did was assuming that the Bush tax cuts wouldn't expire... Which seems like a rather obvious thing to happen considering there's certain elected people who'd rather let the US default than lose the next election.
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regardless of the math, S&P's reasoning is sound. let's not try to find scapegoats, please. the U.S. is hurtling at full speed towards a deficit meltdown, and quibbling over S&P's math doesn't change the fact that the country needs to come to terms with it ASAP.
I do not think that words means what you think it means.
Even if their conclusion is correct, their reasoning isn't anything close to sound. "Oh, the justification for our action was off by about 20%? That's okay, we'll just support the same conclusion and justify it with our gut feeling about politics," isn't reasoning at all. It seems to me that sound reasoning would be quantitatively comparing default likelihoods between the US government and other AAA-rated securities and then adjusting accordingly.
Wh
Re:doesn't make much of a difference (Score:4, Informative)
The other two ratings agencies, Moodys and Fitch, have no plans to downgrade US debt.
I wouldn't be so sure about that... [reuters.com]:
Ratings agency Moody's repeated a warning on Monday it could downgrade the United States before 2013 if the fiscal or economic outlook weakens significantly
Re:doesn't make much of a difference (Score:5, Insightful)
Re:doesn't make much of a difference (Score:4, Insightful)
He's from Washington?
Seriously, who believes anything coming from Wall Street OR DC? We are continuously lied to, by people treating us like children getting ready for Christmas. "Yes Virginia there is a Santa Claus"
We've known about the budget problem, we've known about Social Security going bust, We've known about Medicare, three wars, pork barrel spending all draining money from our economy for YEARS and yet, all they do is kick the can down the street.
Both DC and Wall Street have one thing in common, neither ever takes responsibility for the crap they get us into. And I'm afraid that short of a million people showing up in DC armed to the teeth, that nothing is going to change. After all, people like teat of Momma Government and Daddy Wall Street's allowance.
Buffett appears to feel the same way (Score:4, Insightful)
He says the government's performance is sure not AAA, but he'd rate the debt as AAA.
Remember: Ratings on bonds is supposed to be how likely they are to default. Nothing has changed that makes the US more likely to default.
http://www.cnbc.com/id/44056326 [cnbc.com]
Re:Buffett appears to feel the same way (Score:5, Insightful)
Nothing has changed that makes the US more likely to default.
I would strongly disagree.
Almost all bond issuers can only default by not repaying the principle and interest. I do agree with you that is infinitely unlikely, since the US Govt can simply print the money on demand. Of course no one expected the USSR to collapse when it did, so, its slightly more likely the USA could collapse now.
The failure mode is the US is one of the few bond issuers who controls global inflation. What exactly is the difference, financially, between "not repaying" and "repaying a hyperinflated nominal value"?
Real world example: You buy a 10 year, $1K t-note. I agree completely the odds are excellent, although not quite 100% perfect, that in 10 years you'll have your $1K plus a tiny bit of interest returned to you. I disagree in that the odds are pretty high that due to high to hyper inflation, that $1K t-note will only be worth approximately one restaurant meal.
That is an inflationary default.
Re: (Score:3)
Hmm, that thought applies equally well to every other country in the world. Including Zimbabwe, which recently underwent a classic case of hyperinflation.
And are you old enough to remember when Russia said they'd run the printing presses day and night, if that's what it took to keep the economy afloat?
Realistically, though, the USA wouldn't need hyperinflation to solve the debt problem. Incre
Re: (Score:3)
Standards and Poors also gave AIG and Lehman Brothers AAA credit ratings up til they crashed and burned. Then there were the mortgage backed derivatives issued the same AAA rating by S&P.
So you're saying S&P over-rated securities in the past. (Actually, AIG and Lehman weren't AAA, they started lower than that. But they were clearly over-rated.)
The other two ratings agencies, Moodys and Fitch, have no plans to downgrade US debt.
They also over-rated AIG/Lehman. Isn't that a sign that you shouldn't believe their AAA?
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Still an unsustainable deficit (Score:5, Insightful)
Somebody correct me if I'm wrong, but at current spending levels, cutting $4T over 10 years still has us running a deficit. Considering that this deal was politically the best we could do, it's easy to agree with S&P's pessimistic view of our political budget woes.
Re:Still an unsustainable deficit (Score:4, Insightful)
They didn't cut 4 Trillion over 10 Years. They said they did, but it us up to future legislatures to make it happen. They did nothing except put on a dog and pony show for the kids at home. Nothing meaningful happened.
To expand on what your saying (Score:3)
Congress loves to claim savings but Congress uses Base Line Budgeting which allows the appearance of savings when in fact no cuts are made. Essentially they state this is what it will cost in the future so if we say we will spend less than that we have made a cut yet spending can still and usually does increase.
So when you see a Congressmen bemoaning about harsh/absurd/severe cuts to their favorite program (defense/social/etc) you need to understand the numbers they are using. The closest to real cuts that
Re:Still an unsustainable deficit (Score:5, Insightful)
Running a deficit and running an unsustainable deficit are two different things.
Not really. This is where basic math and basic economics comes into play.
Economists will come up with ways to make it sound different, but it's simple. Running a deficit is bad. Running a surplus is good. It's better to spend less than you have. Period.
The only time it can be good is a short-term deficit to cover a cause/project. For example, you can cover a war, cover a mission to reach the moon, cover a massive infrastructure investment, etc. This is called borrowing.
Borrowing is okay because you don't have the cash today to cover the full cost, but you will in the future - and in the end will benefit from it, resulting in a net gain.
Deficit spending is when you don't care about math or the future. Running a deficit is when you suck at your job
Re: (Score:3)
It's not good to making up your own definition for things. Deficit spending (which you state is always bad) is pretty the same, if not exactly the same, as borrowing (which you imply can be good), assuming the spending is covered by borrowing (as it is in the US).
Furthermore, for a government, running a surplus can be bad, as it could be inefficient allocation of investment.
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It's better to spend less than you have. Period.
Really? Then how does any business in the world get off the ground? You can't exactly buy that $1M machine to turn out widgets when you're starting up...which is where LOANS come in.
Or do you want to wait 12 years to save up enough $ to buy the car you need to commute to your new job that starts next week?
Comment removed (Score:5, Insightful)
Re: (Score:3)
Bring Mexicans in just to tax them? I've got a better idea.
Tax the rich.
Re: (Score:3)
That's not thinking outside the box. The correct decision is both. :P
Re: (Score:3, Informative)
Bring Mexicans in just to tax them? I've got a better idea.
Tax the rich.
OK. So you tax the rich, what... 75%? 95%? Even if you taxed the "rich" 100%, it still wouldn't make a dent in our deficit. Now you have a worse job problem than you had before, since these "rich" guys can no longer invest money into the stock market, which allows companies to expand and create jobs, or buy bonds that allow local and state governments to hire people to build and maintain roads, public transportation and build libraries.
Three things have to happen before our debt issues are resolved.
1)
Re:This reminds me of the Cold War... (Score:5, Insightful)
I keep seeing these arguments and they keep pissing me off. We all KNOW that raising taxes alone won't solve the problem. So why do you people keep writing up these long-winded posts about how taxing the rich is a waste of time? You are tilting at a strawman.
Another set of problems in your post:
1) You say that states can take over services, yet states are often doing a lot worse than the feds and unlike the feds, they are frequently required by their constitutions to have a balanced budget, so they can't even do short term deficit spending until the economy improves. In my home state of North Carolina, they basically gutted public education, among other things, to solve the budget gap. You want NC to now have to cover the burden that the feds used to cover? Fat chance.
2) If you really want the economy to grind to a halt, a federal sales tax is a good way to do it. How will taxing/penalizing economic transactions help people make more economic transactions?
3) The top 1% pay most of the tax burden because they have by far most of the wealth in this country and benefit the most, directly or indirectly, from government services. Why do so many right-wingers act as though these people are being unfairly burdened with having to pay for the country that allowed them to become and remain wealthy? I don't think we ought to soak the rich, but as part of a multi-faceted plan to fix the budget, they ought to pay, you know, just a little bit more. Not just the top 1% either, of course.
Re:This reminds me of the Cold War... (Score:5, Informative)
Federal income taxes are deducted from state income taxes.
Wrong. Backwards. State income taxes are a line item deduction from your federal income taxes. Increased state taxes result in less federal income. (See Schedule A).
Strange that states that charge a sales tax with no income tax are doing much better than those that rely in income taxes. Compare Florida to Michigan. Compare Texas to California.
Comparing anything to California is invalid because California has so many Constitutionally-mandated spending requirements and Constitutionally-prohibited tax sources that it's basically a given they're going to be broke year in and year out. What about Nevada? They have no income tax at all and are currently facing a $1.8 billion dollar deficit on a $3.6B budget; that's even worse than the federal government, as a percentage of money spent.
I drive on the local interstate much more than the top 1%. Sure, those interstates bring products to my local store, but I buy them from there, so I benefit from that as well.
Okay, let's look at that. That truck bringing groceries to your store can weigh (legally) up to 40 tons, but let's conservatively say it weighs 25 tons. That's 12.5 what a good-sized car weighs. Taking into account that road wear is proportional to the fourth power of weight, and one semi bringing groceries to the store causes as much wear and tear as 24,414 cars. Do you think that semi pay 24,000 times as much in taxes and fees on a per-mile basis as you do? If not, then business owners are getting a lot more out of their road and fuel taxes than you are.
My bank account is FDIC insured, just as the rich guy's, but I don't have over $250,000 in any account, so I'm 100% covered; rich people are not.
If you honestly think that anyone well-to-do keeps more than $250,000 in a single savings account then you'd make the world's worst financial advisor. Even the moderately wealthy have their money tied up in investments (not FDIC-protected) and their savings spread across multiple financial institutions in order to minimize risk. That's not even taking into account that the FDIC is broke [bloomberg.com], and the institutions where the rich keep their investments just get a direct federal bailout when they go under. So in summary:
Would you like to be wrong about anything else today?
Their crappy math got us here in the first place. (Score:5, Insightful)
It was S&Ps rating system that the banks gamed with repackaged mortgages in the first place. Fuck um.
How long before the media points that out? Think they will?
Re: (Score:3)
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We can all agree that S&P shouldn't be trusted, but if bond buyers still trust them we're screwed...
Mortgage Backed Securites (Score:5, Interesting)
Re: (Score:3, Informative)
My only comment to this is hindsight is 20/20. The problem with statements like this is that they very obviously weren't at the time. Not just from the rating agency's point of view but many economists were feeling the same way. There were a few economists who cautioned against them and had them correctly evaluated but they were far from the majority and even then most of their opinions were hedged with speculative language.
Re:Mortgage Backed Securites (Score:4, Informative)
...which would result in a massive devaluation of our debt as China quickly sold it to other investors, resulting in interest rates skyrocketing as we issued new bonds and no one would buy them at current interest rates.
You don't really understand how this works, do you? China isn't sitting there with a bunch of pieces of paper that say 'bonds we sold to China'.
They just have normal bonds. Like any other bonds, they can be sold to others. We can't just magically revoke them, it's not like there's a list, and the way the bond market works, half the time it's not even China redeeming them anyway. They could easily make that 'none of the time' if they felt like it.
The only reason we know that China has about $900 billion of our debt is that they've told us that, and we can roughly confirm it by watching how the market operates.
And this is not to mention the fact that once you start targeting individual bond holders and changing the laws so you don't have to pay them (Or delusionaly think you don't have it, when of course they'll just sell the bonds to others.), uh, you've basically destroyed your credit rating forever.
Re:Mortgage Backed Securites (Score:5, Insightful)
It being a bubble did not automatically mean that mortgage-backed securities were iffy. All the rating agencies cared was: 'Were people going to continue to pay their mortgage?' They couldn't care less if the house value was going to collapse, except to the extent that it was going to affect the likelihood of paying the mortgage.
However, the fact it was a bubble did affect that, and hence the rating agencies should have taken a closer look at them...
Something like half those damn things never had the mortgages properly transferred inside. Some mortgage backed securities appear to, legally, have no mortgages at all in them.
This isn't some sort of fraud in the loan making, where the rating agencies arguably weren't supposed to care about. It wasn't fraud in the foreclosures, which is also happening. This is fraud in the actual securities. Some of the investors who went bust have started looking at the actual securities, and discovered they were utter nonsense, without actual loans inside.
Forget the damn housing bubble, or the economic collapse. Those can be argued the rating agencies weren't able to foresee. However, the fact they stamped A+ or whatever on an security with bogus pieces of paper stating that some unknown mortgage will be transferred in at some future date, some mortgage that didn't even exist and can't be transferred now...well...seriously, I don't understand how they're still in business.
Political (Score:5, Interesting)
S&P in their report had essentially 2 issues:
a) They had questions about the budget strategy over the medium term.
b) They believed that political risk in the United States had increased substantially.
Given that we had 50+ US congressmen arguing that a sovereign default was either no big deal or desirable I can't see how one can disagree with (b). Political risk has substantially increased.
(a) is more questionable. The US economy is very large and the US ultimately does own a printing press. But the United States because of political divisions is simply unwilling to engage in the actions required to end high unemployment nor willing to reduce the government to the size needed if we intend to maintain a much lower labor participation rate than we had been.
So I can see both sides for (a), but (b) is the big factor. I think the Obama administration in trying to attack S&P based on secret conversations is simply failing to address the depth of the real problem. Whether their story is true or not, S&P is not wrong to notify investors that treasuries have risks they did not have 5 years ago.
Re:Political (Score:5, Insightful)
You're right... it's just too bad that S&P didn't warn investors about the even greater risks involved in bundling questionable home loans and calling the result "investments".
Re: (Score:3)
The fact is that treasuries do not have risks they did not have 5 years ago, those risks are just 5 years closer now (and at this point, it is becoming clear that those risks are even closer than estimates put them 5 years ago). It
Re: (Score:3)
Re: (Score:3)
Yep we are disagreeing. Given that there were fairly low levels of progressive policies in the 1920s leading into the crash, and the economy was highly regulated during the 1950s and 1960s boom... I'm not sure how you can sustain that argument. There are objective measures of regulation and government interference and they were dropping off all during the 1920s.
Amateur hour (Score:4, Insightful)
http://krugman.blogs.nytimes.com/2011/08/07/i-heard-it-through-the-baseline/ [nytimes.com]
Re: (Score:3, Insightful)
Leave it to Paul Krugman to defend our current spending practices.
missing link from the original submission (Score:3)
http://www.treasury.gov/connect/blog/Pages/Just-the-Facts-SPs-2-Trillion-Mistake.aspx [treasury.gov]
Forgive us the gloating (Score:3)
The countries that can gloat [wikipedia.org] are: Australia, Austria, Canada, Denmark, Finland, France, Germany, Guernsey, Hong Kong, Isle of Man, Liechtenstein, Luxembourg, Netherlands, Norway, Singapore, Sweden, Switzerland, and the United Kingdom
Forgive us for gloating that we have a higher credit rating in the UK, its just about the first chance we've had to gloat about anything related to our economy since 2008. I know that this probably won't last long - they probably just haven't got round to downgrading us yet!
Changing their principal rationale to political? (Score:5, Interesting)
Please see their original report and press release. Here are some quotes from the August 5th press release:
"The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy."
"Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. "
Their explanation didn't suddenly switch to political. It was there all along, yet so few pundits chose to focus on it.
Treasury Department Spin (Score:5, Insightful)
The CBO assumed discretionary spending will grow at the rate of inflation. S&P assumed it grows with GDP. Both of these are perfectly valid assumptions (if any complaint is to be made, they're both too optimistic since historically the growth in discretionary spending has far exceeded both measures); a legitimate alternate choice of economic models is not an error. This is the Obama administrations typical "all reasonable experts agree" tactic of painting legitimate differences in opinion as disengenuous.
As for S&P's "acknowledgement", it was more along the lines of "we just reported your long term unfunded obligations are $211 trillion and you lack the political will or ability to do anything about it. And you want to have an argument over whether it's really $211 trillion or $209 trillion? If it's that improtant to you, we'll use your numbers, but you're completely missing the point here."
Re: (Score:3)
we just reported your long term unfunded obligations are $211 trillion and you lack the political will or ability to do anything about it. And you want to have an argument over whether it's really $211 trillion or $209 trillion?
S&P's original figures were closer to 14.7 trillion by 2015, and 22.1 trillion by 2021 [standardandpoors.com]
Good financial analysis does not start with pulling figures out of your ass.
Standard & Poor's (Score:4, Funny)
I have to share this. (Score:3)
Having Standard & Poors downgrade the creditworthiness of the United States, and warn it about further downgrades, is a little like having the Catholic Church lecture scout leaders on the proper behavior toward boys. http://news.yahoo.com/why-congress-standard-poors-deserve-other-092005860.html [yahoo.com]
I laughed; but, I still don't know if it is funny or just plain sad.
It's all about fuzzy math (Score:5, Insightful)
Government: We planned to increase the budget deficit by $4 trillion next few years, but now we're only increasing it by $2 trillion! We cut spending by $2 trillion dollars!
S&P: You still increased spending. You didn't cut anything. You still spend almost twice as much as you make. You are no longer credible.
Government: Traitors! Terrorists! Hostage takers! Can't you idiots in private industry do math?
Pathetic. Even the slashdot title of this article is complete rubbish.
Re:When ideology surpasses basic mathematics (Score:5, Insightful)
It isn't basic math, or any math at all, really. Despite massive quantities of data analysis and some of the most mind bending graphs ever devised, plain old emotion still rules most financial markets and most certainly rules things like applying "AAA" versus "AA+" to some piece of paper.
These people everyone is amped up about changing the US' rating are the same people who entirely failed to foresee the biggest economic collapse most of us have ever lived through. They were handing out AAA ratings, to mortgage backed securities that no one other the guy who invented them could even understand, just a few months before they became almost completely worthless. The fact that anyone still trusts S&P and their ilk is illustrative of the fact that emotion rules this game. They've proven with math that they know no more than anyone else.
Because the entire economy is based on confidence (Score:5, Interesting)
You can run the numbers all you want, cook them every way but over-easy, and produce a powerpoint presentation of them that would make even the most die-hard quant choke. But at the end of the day, it's all about confidence. All those dollar bills in your wallet are only as valuable as we collectively agree they are. This can range from "Not worth the paper they're printed on" to "Holy shit, this is the best currency in the world!" But it all depends on confidence. U.S. currency (and bonds too, for that matter) has no real objective value.
The U.S. government takes in so much in revenue each year, and outlays so much in spending. Right now spending way outpaces revenue. Could that economy be balanced? Probably. But who knows what that balanced economy would even look like, or whether it would even work. Maybe even trying to balance the U.S. economy would turn the U.S. into a second-world country, hopelessly spiraling towards collapse. Maybe the U.S. economy is doomed to collapse no matter WHAT we do. In that kind of situation, what are those dollars worth? Who the fuck knows. It's all a question of how much confidence you have that the U.S. economy WON'T collapse, that the government WON'T default on its debts.
Right now, the world has a lot of confidence in the U.S. But recent political events put this seriously into question. Republicans have a vested interest in keeping the U.S. economy in the shitter through 2012 (to help their party's political ambitions). And, more importantly, they have shown their ability (and willingness) to best the Democrats politically at almost every turn. They have a great deal of party discipline and the determination to keep the U.S. economy down. This puts the chances of an ongoing, and possibly much more serious, recession as very high. S&P was just recognizing that fact, along with the fact that it's highly unlikely that either party at this point will ever be able to get the U.S. debt under control without some kind of default.
Re:When ideology surpasses basic mathematics (Score:4, Insightful)
Any time I see a 10 year budget I get a good chuckle. We don't even have a budget for this year.
The ratings agencies are worthless (Score:3, Insightful)
The fact that anyone still trusts S&P and their ilk is illustrative of the fact that emotion rules this game. They've proven with math that they know no more than anyone else.
"All you need to know about rating agencies is that in May 2010 Moody’s still rated Greece triple-A." - Mark Steyn
Re:The ratings agencies are worthless (Score:5, Informative)
"All you need to know about rating agencies is that in May 2010 Moody’s still rated Greece triple-A." - Mark Steyn
I don't doubt that Mark Steyn said that, but what he said is false. In April 2010, Moody's lowered Greece's rating [marketwatch.com] from A2 to A3, which is definitely not the same as Aaa. It is closer to "junk" rating than a triple-A rating. It is also worth noting that less than two months later, in June, Moody's cut the rating [bbc.co.uk] all the way to junk status, Ba1.
Re:When ideology surpasses basic mathematics (Score:5, Insightful)
We ( the US ) obviously can't get its act together by ourselves. Congress proved that. It took the threat of a downgrade before we finally decided to get semi-serious about the issue. Personally, I would consider the S&P downgrade as a warning shot across the bow. In effect "Get your sh*t together or suffer the consequences".
We shouldn't REQUIRE a GD debt increase to begin with. If our idiot 'leaders' would learn to spend less than they take in, we wouldn't NEED a debt ceiling at all. S&P sees this, as does the rest of the world. The leadership isn't interested in reducing their spending and, as a result, S&P made the right decision. This isn't a sustainable path. At some point it WILL come falling down around you. Why the retards in charge can't figure this out is beyond my ability to explain.
Personally, I hope the other rating companies follow suit. It will take that level of threat before my elected morons finally quit bickering and note the cliff edge they're dancing on. Maybe ( and it's a longshot ) they'll be able to get this train back on the right track. Maybe.
Given their track record, I'm definitely not counting on it. . .
Re:When ideology surpasses basic mathematics (Score:5, Interesting)
...the same people who entirely failed to foresee the biggest economic collapse most of us have ever lived through. They were handing out AAA ratings, to mortgage backed securities
This suggests that it was merely incompetence on the part of the rating companies, when outright fraud would be the more apt term. They gave out those AAA ratings not because they're boobs, but because their customers - the big investment banks - were paying them them huge fees to do just that. The fact that no one's even been investigated, let alone prosecuted, for this continues to amaze and practically guarantees a repeat performance in the future.
Re: (Score:3)
plain old emotion
and politics - don't forget politics. S&P has decided that doing this will benefit them, so they did it. It's not based on any particular calculation, it might be justified by one, but in the end, S&P dinging the US credit rating is going to gain S&P some advantage, or at least they think it will.
Re: (Score:3)
Once the deficit becomes the sticking point to actually getting things done in Congress...like say passing debt limit increases...well now your rating agencies are going to price in the possibility you might actually default.
The GOP completely manufactured this disaster and deserves the *entire* blame for it. And I mean the downgrade and it's aftermath, the 'current' debt and deficit a
Re:When ideology surpasses basic mathematics (Score:5, Interesting)
Not to be silly or anything but it deserves to be downgraded.
AAA is supposed to be rock freaking solid. You do not worry about it.
This up to the wire biting your fingernails crap is *NOT* AAA material. If you saw the last 3 budget rounds being this sort of fiasco (which it was) would you want to invest in it?
If you have to worry about it then it is not AAA material. It is still 'good' credit. But something you need to keep an eye on so AA+.
The rating system was subjective in the first place. As seen by the AAA ratings they were giving out to 'too big to fail' institutions right before they failed. In many ways s&p helped create the very mess they are downgrading the US gov for. As the US gov covered their bets...
I for one pray they put the cat back in the bag (Score:5, Insightful)
Well, first a positive note : America's not nearly as bad as most other nations that grace this planet. China, while currently better than America, isn't without debt problems. But America's better off than Europe when it comes to debt. Yet Europe is better behaved than Turkey & middle east, who are in worse shape despite massive influxes of money.
But still that would mean that on the average, Americans ... did never even intend to repay their debts. Welfare states were created, knowing full well they were doomed. People trading their income now, in the form of taxes, for health care, study help for their kids and pensions that won't come, except for the first ones who enjoyed these benefits.
And yet lots of generations had the option of turning the tide, and didn't. Not just in America, but in Europe, the middle east, and Asia, lots of people had the option of stabilizing the system by choosing to take responsibility instead of shoving the bill to their kids, and all chose wrong.
The real question is, now that the cat's out of the bag, how long do we pretend we can put it back in ? The system has failed, and while this obvious truth can still be denied, it will reassert itself soon enough. Though I do hope we can pretend a while longer, I have a family to take care of, and despite the rosy pictures implied in leftist and progressive propaganda if we simply take the money from the bankers, we all know that their promises of wealth, brotherhood and justice for all will turn into the wars, concentration and slaughter camps they turned into last time.
I would simply suggest to take the lessons of history to heart : when public opinion does not just jabber about evil bankers, but actually attacks them in numbers, do what millions of people forgot to do before world war 2 : run ! Run to a place with sufficient food, home produced food, without multiculturalism (which will soon be nothing but a fancy word for ethnic wars), and preferably a nation without military alliances. Stay far away from any large American city, get the fuck out of Europe (the EU, not Switzerland), get the fuck out of the middle east, get the fuck out of Africa, or if you must, at least stay out of Northern Africa and the Saharan countries.
I don't know who will rise, it depends on many factors. I guess it will be whichever decent nation manages to not get destroyed, and I frankly seriously doubt it will be China.
Re: (Score:3)
The average age of the world's greatest civilizations has been 200 years.
Great nations rise and fall. The peo
Re: (Score:3)
This sort of behavior is exactly why the debt has been downgraded. It's f***ing knuckle-dragging, drooling, inbred idiots like you who are the reason we can't arrive at any sort of a rational compromise. One side talks about t
Re: (Score:3)
Have you read that section? If not, read it:
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or oblig
Re: (Score:3)
Except the budget itself is law, and it authorized the debt by requiring more expenses than are supported by income.
Re: (Score:3)
But not all expenses are public debts, so what does that have to do with the 14th amendment and all this hullabaloo?
What the democrats are calling a default, like not sending out social security checks, is not an ACTUAL default, because the government doesn't actually owe anybody social security via a financial contract. In fact you can look on the ssa.gov website and they will tell you, the money you pay them is not in any way yours anymore and you are not entitled to get it back. Your money goes to pay ot
Re: (Score:3)
Certain forces within the US government (on both sides of the isle but I think the argument can be made for one side more than the other) have shown a willingness to play political chicken with the nation's debt, up to and including using imminent default to attempt to blackmail the US population into a new constitutional amendment. You can't just come out with a 'deal' and say "no no we worked it out after all", investment is about trust, and when scoring political points is more important to the people i
Re: (Score:3)
I think you've got it backwards. It couldn't be an economic decision until the deal was actually done. Had they downgraded before it would have been purely political as no final decisions had been made.
Re:When ideology surpasses basic mathematics (Score:4, Insightful)
Political posturing and the political circus has contaminated sound judgement in the US.
If deciding how to spend tax revenue isn't a central, complex political issue, what IS? You think there's some obvious "sound judgment" that everybody intuitively knows but it's been covered up by master politicians?
You are sitting on a multi-billion dollar fleet...
The fact that the only spending problems you pointed out are related to the military makes you sound really biased. A credible solution is going to involve cuts everywhere.
Re: (Score:3)
It doesn't matter anyway (Score:3)
The market has pretty much given up on the ratings companies and many market participants now do their own rating.
Dieting in Washington, DC (Score:5, Insightful)
1) Plan on gaining 100 pounds.
2) Gain 75 pounds.
3) Congratulations. You have a weight loss of 25 pounds.
Re: (Score:3)
If you are a child say 8 years old who weighs 50 lbs (an overweight child)
Now as the child grows up they will still be gaining weight however when they grow up they reach a healthy weight of 150lbs. They actually did loose excess fat over time. but they gained weight.
Echnomic Math works the same way. Inflation expects to grow thus the value of the dollar is always on the average shrinking.
So over 10 years your 2011 Dollar Will may worth $0.74 in 2021. So if you have 12 trillion in dept and kept that const
Wrong. (Score:3)
That makes sense but you are completely wrong. The deficit, in real dollars and as a fraction of the GDP, is expected to grow over the next 10 years. To say nothing of the debt, which is slated to increase very dramatically over that time. The defect reduction is indeed calculated by taking where we expected to be before the reductions and subtracting it form where we expect to be afterward.
The major issue is entitlement spending, which if nothing changes, would require us to raise the federal income tax
Re:When ideology surpasses basic mathematics (Score:4, Interesting)
Which isn't the way Congress did this. What they did was "We spend X trillion on this now. In ten years we expect to spend 5X trillion on this. If we instead decide to spend only 4X trillion in ten years, we've saved X trillion."
Roughly comparable to me saying "I can't afford my house note (this is theoretical, since I paid my house off ten years ago). I was planning on buying a vacation home in the Hamptons. Instead, I will buy a vacation home in Canada's cottage country. I have therefore saved money."
Re:Too good credit rating anyway (Score:5, Insightful)
But then again, most mortgage owners have a reasonable plan to get out of debt in a certain time. For instance, my mortgage will be fully paid off in 15 years, and even assuming I default before that, the bank can sell the house and get their money back, so it won't disrupt anything else.
Can the US government claim the same ?
Re:Too good credit rating anyway (Score:4, Insightful)
The total debt US has is way too high anyway, if a person had same sort of debt load they would be insolvent.
That is a pretty astounding thing to say. Most people who have a mortgage have a far higher debt load than the US government, and sub-prime victims excepted, the vast majority of home-owners do not go insolvent in the process.
When the government has already borrowed to over 10x it's annual income and continues to borrow yearly at almost double its income, I can assure you it acts NOTHING like a normal person. If I had a $500,000 mortgage and only earned $50,000 a year but had a car note that cost me $100,000 a year... you think creditors would get anywhere near me! AAA?? More like FFFFFFFFFFFFFFUUUUUUUU.
The common mistake with the "debt to gdp ratio" is that the federal government doesnt have a valid claim on every dollar in the GDP. They have a claim to what they have levied in taxes (it says so in our constitution). So saying "oh debt to gdp is better than anyone with a big mortgage" is like saying "oh the rest of the guys at my company all own a Porsche, i am just a janitor and my paycheck is 1/10th any of theirs but I can afford to get one too because WE all make TONS of money!"
Re: (Score:3)
According to Bill Gross, the total US liabilities add up to about $60 trillion. At an average price of $5000/acre, the 600 million acres only add up to $3 trillion. That's not an order of magnitude more.
Re: (Score:3)
Liabilities to yourself don't count. Sure the people will be mighty pissed when you don't pay but that's a different story entirely. This is also why Japan's debt doesn't matter...
Re:Separate agencies (Score:5, Funny)
Re:Moody's is not S&P (Score:4, Interesting)
We have a huge cultural problem. Most people don't care about any of the important things. Of the people who care, fewer still are educated. Of the people that are educated, many are polarized in to incompatible philosophies. This is leading to paralysis. I hate to say it, but more and more the idea of dividing the union just makes more sense. The belief that the Federal government should be doing all that it does makes the US too big and too diverse to govern in a reasonable way.
I don't mean any of this in a doom and gloom kind of way, just saying I think it makes a lot more sense. Everybody knows the US is majorly divided on how we should do just about everything, largely based on geography.
Re:Retaliation (Score:4, Interesting)
You seem to be implying that S&P is secretly acting on behalf of the Democratic Party in support of President Obama's re-election campaign, which I find to be an interesting point of view.
The rest is even more confusing.
Re:I can't fault them for doing so.. (Score:5, Insightful)
I happen to be on the side of "spend less", but it is a perfectly legitimate opinion to want to spend more AND collect more. The Democrats aren't advocating raising spending while lowering taxes. Frankly, that sounds like what the Repubs did under Bush II.
Re: (Score:3, Insightful)
Yes, because the position of the Democratic party (and all Democrats) is that basic. "SPEND MORE!"
It must be a simpler, more straightforward world in which you live.
Most every Democrat I've heard has talked about the desire to do some spending cuts in combination with some array of revenue increases. Sometimes they differ in what they think should be cut or protected (Medicare, Social Security, defense, whatever), which can then lead to internal disagreements among Democrats that might make it look like t
Re:I can't fault them for doing so.. (Score:4, Insightful)
FTFY.
Sources: [1] http://en.wikipedia.org/wiki/File:US_Federal_Debt_as_Percent_of_GDP_by_President.jpg [wikipedia.org]
[2] http://www.contractfromamerica.com/Idea.aspx [contractfromamerica.com]
[3] http://en.wikipedia.org/wiki/2011_Wisconsin_protests [wikipedia.org]
[4] http://www.standardandpoors.com/ratings/us-rating-action/en/us/ [standardandpoors.com]
Re:I can't fault them for doing so.. (Score:4, Interesting)
Let me break it down to the most basic of concepts:
Democrats want the government to spend more. The TEA Party wants the government to spend less.
Who do you think is right here?
In a global recession on the verge of depression? The Democrats, hands down.
Although 'the Democrats' misrepresents that side of the argument. Sane economists and a few lawmakers want to increase government stimulus. Some Democrats are stupid, however, and want to spend less, just not as much less as the Tea Party. The president, unfortunately, is among the latter.
Re:I can't fault them for doing so.. (Score:5, Insightful)
Yeah, and God Forbid the people that can afford to give a little more to help the country that allowed them the opportunity to become wealthy in the first place actually do so. They didn't write those big bribe checks...oh, I'm sorry, campaign contributions... to have someone turn around and raise their taxes and cost them an extra percent a year. I mean, what is that, a few thousand dollars less a year? How will they ever survive?!
I'm all for spending cuts, but without taxes being raised on the wealthy, it's just more of the same BS. Tell the people living on 12 grand a year in the projects that it's time to tighten their belts so that the asshole speculators on Wall Street can get away with their ridiculously low effective tax rates. Oh, but I forgot, all that paper being traded back and forth "creates jobs". That's why these there's so many jobs out there now, right? That's why these companies are all sitting on record amounts of cash in the bank both here and abroad, meanwhile they're laying people off left and right...
This is just Part II of the extortion scheme that started with the bailouts as the rich try to snatch up an even bigger piece of the pie than they already have.
fault them both - they deserve it (Score:5, Informative)
Democrats want the government to spend more. The TEA Party wants the government to spend less. Who do you think is right here?
A plague on both their houses!
From what I read here, outside of the USA, where the media are less partisan when covering internal US issues, the Democrats want the government to spend LESS, and the Tea Party wants the government to spend LESS too. They disagree a little on which parts of government should have most cuts.
Also, the Democrats want to increase taxes a little, to narrow the gap between government spending and income.
The Tea Party DO NOT want to increase taxes to narrow the gap.
Both are proposing that the government spend more than it raises.
Did I miss anything important?
Re: (Score:3)
Did I miss anything important?
Not a thing, other than the lies and hyperbole that the partisans are throwing at each other, hoping to continue to entrain the discourse and distract citizens.
Fortunately, I think citizens are increasingly seeing that the partisan emperors have no clothes, although they are still not quite at the level of understanding required to actually eliminate the deficit and reduce the debt. To reach that stage--which we got to in Canada in the early '90's--you have to stop paying attention to all the "baseline" no
Re: (Score:3)
Immediately followed by the next questions: who is benefiting from Moody's and Fitch not downgrading their rating ? And who benefited from S&P waiting so long to downgrade ? And who's benefiting from only downgrading to AA+ ?
Re:as a European. (Score:4, Informative)
As a European commenting on our domestic policy, you apparently aren't getting the full story or are choosing to ignore it.
Oh, but it does. The president must sign or veto each spending appropriation [about.com]. And Obama has approved and encouraged plenty. Wikipedia can show you [wikipedia.org] that since Obama has entered office the rate at which the debt is growing has increased substantially.
You blame defense spending for all our woes. Defense spending is still high, but not historically out of line [wikipedia.org] for the past 50 years and it is set to decrease in the next few years. Well, except for interest on debt, which is stupidly high.
You know what else costs a gigantic pile of money? Entitlements. Here's another picture for you [wikipedia.org] that is showing what is happening on that side of things. Note that historically it is only increasing. At least defense spending had had a cut once in a while, but entitlements are not sustainable at their current growth rate. But don't worry. Obama has nothing to do with this. It's just a coincidence that we use the word "Obamacare [google.com]". Really.
So no, Obama isn't the only one to blame. It is insane to think that he is. But saying that he has nothing to do with the problem at all is similarly pathetic.
That is not at all what the TP wanted to do. They wanted to cut spending so that we were still meeting debt obligations but cutting back on everything else. Your analogy is flawed. What the TP wants is to order dinner at a restaurant but then leave off the expensive dessert at the end so that they can afford to pay the entire bill.
Re: (Score:3)
Uh, reference please. Medicaid and CHIP, the only two broad general programs I know of, certainly do not allow that. And the way you worded that is a prime example of rhetoric: "a family of four with an income up to $82k can....". Well, "can" is not the same as "does", and if it is really true likely has some other fairly strict requirements.