The Debt Bubble
Mar 16th, 2010 by David Anderson
How much of our tax revenue should go to pay debt service? Moody’s is predicting that we will go over the 14% range and loose our AAA status as a nation. I bet that Moody’s gets some killer audits and changes the standard by then.
Losing our AAA rating would mean higher interest rates would be paid on our bonds. It could result in less foreign investment in our government debt. China is already buying gold and less American debt. It has fallen to second in American debt holdings behind Japan. Less foreign investment means that the federal government would be competing with private business for capital. This along with the need for even more borrowing because of higher interest rates will be a drag on the economy in 3 years. There is a debt bubble which would dwarf the real estate bubble which dwarfed the tech bubble. We have to start thinking about addressing it now. That is the big issue of the campaign.
Geez, Moody’s gave all those junk bundled subprime mortgages triple AAA. That’s the only reason America’s pension funds purchased them. Moody’s stamped junk AAA.
Now they’re the are getting all nitpicky?
Only a few places to cut with any money worth going after:
Military, Medicare, Social Security. Sorry, cutting the “pork and waste” won’t make a dimes worth of difference. This is more like cancel NASA and the F-35. Cut Medicare payments to doctors and hospitals in half. We could always raise taxes back to where they were before crazy economic theory took over. We did not have nearly as much debt back then in the 1950′s 1960′s 1970′s. As a matter of fact we refer to them good old times of high taxes low debt as the “Happy Days”. Fonzi’s dad never complained the Government was stealing from him.
You are quite wrong. It was so bad that it was the subject of movies. It led to the creation of the modern conservative movement. The worse part is that the debt zoomed to an all time high that we are only now approaching as percentage of GDP. Inflation was worse. The 1970′s was a lost decade economically. High interest rates stunted growth. The stock market of the 70′s was down. Energy regulations created a crisis. It was worse than today.
You know that we brought the deficit down from near 400 billion to 175 billion without addressing entitlements. We ballooned it before increasing them. Other spending makes a difference and is important to address.
Now I agree that you will never solve the long term problem without reforming entitlements. That is where the real money is.
I agree with the point on the mortgage backed securities. Moody’s didn’t understand them yet they rated them like traditonal mortgage insturments. It was a mess. In their defense those were new and complicated securities that appearently even the creators didn’t understand like they should have. We have been dealing with government debt for thousands of years. It has a history.
David, according to all the new evidence, the problem was not understanding what they were stamping AAA (although that in itself is negligence), the problem was a system corrupted by greed. The way it worked is:
Somewhere along the line Moody’s ceased being an independent rating agency. The arrangement was Goldman Sachs and other paid Moody’s for the rating. No rating. No paycheck. Sort of like the realty appraiser on the payroll of the person selling you the house. New regulations in the works are being criticized for not fixing this.
As you know, most American and Foreign pension funds are prohibited from investing in anything less than AAA. Without the collusion of the ratings agencies with the brokers the pension funds would not have suffered such terrible losses.
On COPS the other night I saw 10 guys in black combat gear use a battering ram into a house, take the entire family to the ground at gunpoint looking for marijuana plants. Why no doors busted down on Wall Street? Is that liberal, conservative, progressive? It really pisses me off. One of my biggest disappointments with the new administration is – I was hoping they would be more aggressive with white collar criminals. So far we got Bernie Madoff.
Moody’s is predicting that we will go over the 14% range and loose our AAA status as a nation.
No, Moody’s is NOT predicting this. From the linked article:
I don’t disagree with anything that you said, Don. More could be added. I think the corruption of the ratings organization did great harm to many people. It was almost criminal.
The only reason it was not officially criminal is because we have laws to punish shoplifters but nothing for those who rape and pillage our entire economy. It is just a matter of us the people directing some of our Tea Party rage in that direction. I used to think it sounded very Communist when China invoked “crimes against the people”. I am starting to get it.
Even worse, since they wrote the laws in the Congressional leadership’s office (my party I admit), they made sure it wasn’t. Both parties were bought and paid for legally, but we are the ones stuck with the bill.
Well David, instead of trying to overthrow the regime, you might try using them to further your aims. They’re really not that bad. They’re going to be there for awhile anyway. Send The President a letter saying you are a conservative in transition and might he do something to crush the corruption at the highest levels of our financial institutions. Tell him Don sent you.