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."
Re:Pack of LIES (Score:2, Informative)
You do realize you could take every dollar of taxable (that is AGI) of everyone earning $75,000 or more (in 2006 tax role numbers) and barely cover the $4 trillion budget?? Is that what you want? Is that "fair and equitable"? I feel like I am LIVING in Atlast Shrugged. Ayn Rand is writing reality now from heaven.
I did notice you mentioned spending cuts...the only real answer to this problem. A hard answer, but sorry the only real one. ALL government activities need to be cut to tax receipts. Period. If our tax receipts are $2.8 trillion, then that's it. If granny needs to take a haircut on her SS check or can't get a new hip, too bad. Sorry. Your generation (and your kids, I'm a grandkid at this point) spent all of the money you put in, the money I'VE put in, and maybe even my kids. You're on to MY grandkids now.
Its terrible I agree, but it is what it is. CUT THIS STINKING GOVT TO THE BONE!
Re:Mortgage Backed Securites (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: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:Pack of LIES (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.
Re:This reminds me of the Cold War... (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) Cut spending. If services suffer, let the states take over those services.
2) Tax everyone. Once everyone is paying taxes, say, via a federal sales tax, suddenly everyone will realize that it's their money that the government is spending. If you pay no taxes, you don't care how the government spends tax money. The top 1% pay a vast majority of the tax burden. Imagine how much more money the government would receive if you started taxing the other 99%!
3) Cut Spending. I can't say this enough.
As for "Tax the rich [seekingalpha.com]":
Given that we had a deficit of $1.3 trillion even after taking in $899 billion in total income tax revenues, does anyone in his or her right mind think raising income taxes on everyone or 'raising taxes on the rich’ would solve the problem? We would have to see income tax revenues from everyone go up by more than a double. That is, with a $1.3 trillion deficit for 2010, we would need an extra $1.3 trillion in income tax revenues on top of the $899 billion we got in 2010. That is not going to happen. And, instead of getting a reduction in spending, we are actually ramping it up for fiscal year 2011. Now that’s crazy.
In other words, the deficit alone is more than our entire income taxes bring in. If you double the income taxes on EVERYONE, not just the rich, you would still fall about $430 billion short of just covering the deficit. The deficit is $1.3 trillion. Income taxes area bout $900 billion. Bringing in another $900 billion won't cover the $1.3 trillion annual deficit. Sorry, but math trumps your class envy.
Also, as a side note, state and local income taxes are calculated AFTER federal dollars are taken out. If you raise the rate from, say, 35% to 70% on the "rich", that takes a huge bite out of state and local budgets. Instead of being able to tax the wealthy on 65% of their total income for the year, states and local governments would only be able to tax on 30% of the year. This would literally cut state and local tax receipts in half AND STILL NOT PAY OFF THE FEDERAL DEFICIT.
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: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:as a European. (Score:1, Informative)
As an American, I'm going to have to disagree with your idea that the deficit "has everything to do with the Republicans".
Yes the Debt went up an amazing $4.9 Trillion dollars the 8 years Bush was president, mostly because of the 2 wars you speak of. The much more frightening part, and the reason S&P lowered our credit rating is because in the 2 years and 7 months under Obama our debt has gone up another $4.9 Trillion! That means that in roughly 1/2 the time it has gone up the same amount, while pulling back on those 2 wars that you speak of. So at least Bush had the wars as an excuse for his insane spending (not saying I agree with the huge spending levels under Bush either), but what does Obama have to show for his spending at twice the rate? Bailing out Wall street and buying GM?
Wow, I'm glad all the banks got saved, and aren't loosing any money in this crisis, but I'm still loosing my house, spent this whole weekend moving as a matter of fact. And it sure is nice that GM is still alive and thriving, and in a position to turn out the same crappy cars with ridiculous labor overhead that they had before, while any normal investor got got screwed in the "bankruptcy" that GM went threw, yet the unions were allowed to keep their debt into the new GM.
Both parties are at fault for the mess we are in, but it is the Democrats who are at fault for the downgrade. The US debt scenario was already in a precarious position and they just pushed it over the edge.
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: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: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?
Re:I for one pray they put the cat back in the bag (Score:2, Informative)
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.
According to the IMF, this isn't so. The United States has a higher debt/GNP ratio than most european countries. The exceptions being Belgium, Greece, Iceland Ireland and Italy. Interestingly enough, Turkey with its quota of 43.4 has a far lower ratio than most european countries, and better than the US quota of 92.7 by all means.
As the most easily looked up facts of parent post are clearly wrong, it makes me wonder if the reasoning following is really worth considering as 'interesting'.