Alien | August 7, 2011 at 8:43 PM |
Alien | August 7, 2011 at 9:21 PM |

Welcome to the other side.

@ DR JR
I am very confident we are headed for recession by the end of Q1, 2012. In truth I don’t believe the US has been in a genuine growth position for most of the last 2yrs as advertised. Govt stats are fictional with the birth/death adjustments, not counting unemployed peeps that give up looking for work, underestimating inflation, overestimating production and many other shananigans.

Regarding whether corporations should retain their AAA ratings if the sovereign is demoted as in this US case, I believe that there are only 4 corps currently thus rated. Surely corporations should retain their high rating if they have superior balance sheets, excellent income streams have excellent, dominant brands with high demand etc Additionally they are probably multinationals with income streams in various currencies. The only advantage the US Govt has is taxation and reserve currency status and that is being undermined daily by poor management of the economy. Many countries have been forging agreements to by-pass the US$ eg China and Brazil.

investors are only asking for their money back
not investing for safety due to market volatility

‘ tthat is why too we insist on greater freedom and liberty for broad masses and middle classes of people of barbados from this [particularly virulent form of poloitical economic financial bondage inside and outside of the country’- mr commissiong, give me a break., man. it is this kind of hypocrisy that makes people mistrust people with agendas like yours no matter how worthwhile. true, barbados with its leadership and way of life does have its shortcomings but at least we enjoy the freedom and liberty to criticise our leadership, change our government and travel in and out of our country as we wish. to obtain credibilty you need to apply those comments to the repressive cuban system of governance which you claim to support, admire and extol. the cuban people are crying out for freedom.please help them first.

http://politicalticker.blogs.cnn.com/2011/08/07/sp-targeted-by-top-economic-voices/

Interesting piece on Bloomberg today:

Standard & Poor’s, the rating company that downgraded the debt of the United States to AA+ from AAA for the first time, now finds itself assailed by investors led by billionaire Warren Buffett for making a political decision that has more to do with Tea Party politics than the financial stability of the U.S.

S&P officials, shrugging off a $2 trillion calculation error, blamed “uncertainty” in the policymaking process on Aug. 5 when they cut the assessment of the U.S. government’s ability to pay its debt, citing Congress’s failure to agree on as much long-term deficit reduction as the credit-rating company wanted. Buffett, the world’s most successful investor, said S&P erred and the U.S. should be rated “quadruple-A.”

The New York-based subsidiary of McGraw Hill Cos., whose inflated grades of mortgage-backed investments — paid for by the banks that created the toxic debt — were blamed by Congressional investigators for fueling the financial crisis, rattled investors around the world and provided fodder for President Barack Obama’s rivals in the 2012 elections. U.S. equity futures fell, global stock markets tumbled, oil sank and gold rallied to a record.

“Clearly the ratings downgrade was a ‘political decision’ in the sense that the politics explained the timing of this, because the numbers have been irrefutable for a decade,” said Robert Litan, vice president for research and policy at the Kauffman Foundation in Kansas City, Missouri. “It gives an enormous amount of ammunition to the Tea Party. They said the deal didn’t go far enough and they’ll say ‘see.’”

Ratings Conflict

Litan, a former consultant to the U.S. Treasury, said yesterday in a telephone interview that he agreed with the downgrade, if not the timing. “The charts that show exploding deficits have been around for over a decade,” he said.

S&P’s decision was at odds with the other two main ratings companies, Moody’s Investors Service and Fitch Ratings. Both affirmed their AAA grades on U.S. debt on Aug. 2.

The new rating is the second-highest and puts the U.S. on the same level as Belgium and New Zealand, and above Japan and China. Under S&P’s definitions, debt rated AA is barely different from AAA securities and shows that a borrower’s ability to “meet its financial commitment on the obligation is very strong.”

Markets Tumble

Gold futures surged to a record $1,715.17 an ounce as demand increased for a psychological store of value. Gold, one of 118 elements in the periodic table, pays no interest or dividends like equity or debt.

The dollar depreciated 1.2 percent versus the Swiss franc. Futures on the Standard & Poor’s 500 Index expiring next month lost 2 percent after falling as much as 3 percent. Benchmark indexes in Australia and China tumbled, dropping more than 20 percent from their recent highs. The Stoxx Europe 600 Index fell 1.8 percent to 234.67 points as of 10:24 a.m. in London.

Oil sank as much as 4.3 percent to $83.18 a barrel in electronic trading.

Members of Group of Seven nations agreed to inject liquidity into financial markets as needed and the European Central Bank started buying Italian and Spanish bonds to curb the region’s financial crisis, sparking a rally in the debt of the most-indebted nations.

Hurting Economy

S&P’s action may hurt the U.S. economy over time by increasing the cost of mortgages, auto loans and other lending tied to the interest rates paid on Treasuries. JPMorgan Chase & Co. estimated that a downgrade would raise the nation’s borrowing costs by $100 billion a year. The U.S. spent $414 billion on interest in fiscal 2010, or 2.7 percent of gross domestic product, according to Treasury Department data.

After weeks of debate, lawmakers agreed on Aug. 2 to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion that S&P had said it preferred.

S&P analysts David Beers and John Chambers said that the “extremely difficult” political discussions over how to reduce the more than $1 trillion budget deficit carried more weight in their decision than the nation’s debt.

The “debate this year has highlighted a degree of uncertainty over the political policymaking process which we think is incompatible with the AAA rating,” Beers said on an Aug. 6 conference call with reporters.

Chambers, the chairman of S&P’s sovereign debt committee said in an interview on Bloomberg Television that “this is a problem that has to be addressed by the full spectrum of political parties.”

Obama Criticism

S&P’s decision provided Republican leaders with an opportunity to criticize Obama’s administration.

Republican presidential candidate Mitt Romney, the frontrunner in most polls, said in a statement that the downgrade is a “deeply troubling indicator of our country’s decline under President Obama.”

Senator Jim DeMint, a South Carolina Republican and favorite of the fiscally conservative Tea Party movement who voted against the debt deal, said the downgrade vindicated his decision. “The deal was not a serious attempt to solve our spending and debt problem — it was a political solution meant to kick the can down the road,” he said.

‘Beyond Their Competence’

Democrats disagreed. “We have the people who helped cause the financial crisis now claiming that they’re the experts on what the American budget should be,” Representative Barney Frank, a Massachusetts Democrat, said in a telephone interview before the downgrade was announced. “It’s beyond their competence and I’m just puzzled that people pay attention.”

S&P maintained its AAA rating on the U.S. during George W. Bush’s presidency as the national debt grew to pay for wars in Afghanistan and Iraq, tax cuts in 2001 and 2003, Medicare prescription drug benefits and the bailout of Wall Street. Together, those costs added $3.4 trillion to the national debt, according to data compiled by Bloomberg.

Obama’s stimulus package will total $830 billion by 2019, according to a May 2011 Congressional Budget Office report, half the cost of the Bush tax cuts and less than two-thirds of what has been spent on the wars in Iraq and Afghanistan. The U.S. went from budget surpluses averaging $139.7 billion from 1998 through 2001 to a deficit of $1.29 trillion last year, Bloomberg data show. The shortfall peaked at $1.42 trillion in 2009, the first year of Obama’s presidency.

BlackRock, Buffett

The debate will continue, said Litan. “Our politics were dysfunctional before this and I think they’ll be even more dysfunctional now,” the former Treasury consultant said. “You’re going to see a lot of finger-pointing.”

BlackRock Inc., the world’s biggest money manager, and Buffett, the chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., said the decision doesn’t reflect any inability of the U.S. to pay its debts.

Treasury prices dropped, with the yield on 10-year notes falling 0.07 percentage point to 2.49 percent as of 10:19 a.m. in London. The yield on the benchmark fell to 2.4 percent on Aug. 4, the lowest since October, as the downgrade loomed. Strategists at JPMorgan said any drop in Treasuries from the ratings cut is unlikely to be “sustained,” while Barclays Plc said effects from the downgrade shouldn’t be “significant.”

There’s been no lack of foreign demand for Treasuries. The amount of U.S. bonds held outside the country has risen to $4.15 trillion from $2.19 trillion in mid 2007.

‘Doesn’t Change Anything’

S&P’s move “doesn’t change anything about the risk of U.S. Treasuries,” Peter Fisher, New York-based BlackRock’s head of fixed income and a former undersecretary of the U.S. Treasury Department, said in a Bloomberg Television interview.

Credit-default swaps that protect against default on U.S. notes for five years fell 11 percent last week to 55.4 basis points, CMA data show. That compares with an increase of 16 percent to 74.2 for swaps linked to Germany, an 18 percent climb to 143.8 for France, and a 4.5 percent increase to 77 for U.K. government securities. S&P rates those countries AAA.

Economists said S&P erred by basing its decision on politics instead of sticking to the assessment of the nation’s finances.

“They think they’re giving an honest appraisal but they have instead become hopelessly entangled in the politics of the national debt,” Chris Rupkey, the chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in a Bloomberg Television interview on Aug. 5. “The U.S. is not out of money, it has the financial resources to make good on its debt, and it should not have been downgraded.”

$2 Trillion Error

John Bellows, the Treasury’s acting assistant secretary for economic policy, said in a blog post that S&P initially overestimated future deficits by $2 trillion over 10 years. “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,” he wrote.

S&P said in a statement that the revision lowered its forecast for the debt-to-gross domestic product ratio in 2015 by two percentage points and didn’t affect its ratings decision. S&P said in the Aug. 5 report that the ratio of debt to GDP would reach 77 percent in 2015 and 78 percent by 2021.

In 2009, when S&P reaffirmed the U.S.’s AAA rating, analysts led by Nikola Swann wrote that the ratio would approach 90 percent by 2013.

‘Always Wrong’

“The old fashioned ratings agencies where humans make the decision to downgrade are always wrong,” Christopher Whalen, managing director at Institutional Risk Analytics, said yesterday in a telephone interview.

S&P came under scrutiny for ratings of financial products linked to subprime mortgages after losses and writedowns by the world’s biggest financial institutions reached $2.1 trillion.

The Financial Crisis Inquiry Commission called S&P and Moody’s “key enablers of the financial meltdown” in its January report. In April, a Senate panel said that the rating companies engaged in a “race to the bottom” to assign top grades on mortgage-backed securities in order to win fees from banks.

S&P kept an A- rating on Iceland until October 6, 2008, when the country’s government was forced to guarantee all domestic bank deposits after its currency plunged. The company reaffirmed its AAA rating for Lehman Brothers Holdings Inc.’s financial products unit on Sept. 12, 2008, three days before the bank failed. It downgraded Bear Stearns Cos. to BBB on March 14, 2008, two days before JPMorgan agreed to buy the failing securities firm.

‘Last People’

“There is no reason to take Friday’s downgrade of America seriously,” Nobel Laureate Paul Krugman said in a New York Times column. “These are the last people whose judgment we should trust.”

While S&P cut Japan’s credit rating to AA- in 2002, the country has no difficulty borrowing. Japan’s 10-year notes yield 1 percent, compared with 2.41 percent for AAA rated German bunds, Bloomberg data show.

“In those rare cases where rating agencies have downgraded countries that, like America now, still had the confidence of investors, they have consistently been wrong,” Krugman wrote.

S&P said in its report that the failure by politicians to act on increasing government revenue also was a consideration in its decision. It no longer assumes that the 2001 and 2003 Bush tax cuts would expire by the end of 2012 “because the majority of Republicans in Congress continue to resist any measure that would raise revenues.”

Politics as Factor

Politics is listed as one of five “key factors” in S&P’s methodology for grading governments. “Part of our analysis assesses how government policymaking affects a sovereign’s credit fundamentals,” Ed Sweeney, a spokesman for the ratings company, said yesterday in a telephone interview.

S&P gives 18 sovereign entities its top ranking. The U.K., with a debt estimated at 80 percent of GDP this year, or 6 percentage points higher than the U.S., has the top credit grade. In contrast with the U.S., its net public debt is forecast to decline either before or by 2015, S&P has said.

“To downgrade you have to argue there’s an increased chance that we won’t pay our debts,” said Peter J. Solomon, founder of New York-based investment bank Peter J. Solomon Co. and a one-time counselor to the Treasury Secretary under President Jimmy Carter. “I don’t think that’s been proven, I think it’s been proven that we always will pay our debts.”

‘Mismanaged Country’

Solomon said yesterday in a telephone interview that politicians are wrong to criticize S&P’s decision. “If I were a politician I wouldn’t shoot the messenger,” he said. “This is really a mismanaged country.”

Alice Rivlin, former President Bill Clinton’s budget director who served on a fiscal commission Obama set up last year, called the downgrade “entirely symbolic.”

S&P “has no inside information and has done no original research, so they aren’t telling anyone anything they didn’t know already,” Rivlin said in an e-mail. “It is not like downgrading a company or a complex security, where they might actually be contributing new information — although their track record before the crisis doesn’t inspire confidence there either.”

@PDC

Your comments seem to be personal, did Dr. Robinson fail you at UWI or something? A simple search of the Internet will toss up a myriad of views about the role of CRAs, many not dissimilar to Dr. Robinson. Attack the issue at play!

@ DAVID

I am sure you are aware of that the famous, common cliche, “MAY YOU LIVE IN INTERESTING TIMES” (as you seem to use it quite often) is actually a Chinese curse… Were you in Tottenham, S.London on Saturday nite you would understand why violence hits the “STREETS” of London… (a debate for another day)…

However, it is only [1] of [3] dire Chinese curses…

Curse #2 states: “May you come to the attention of those in power.” (an ominous warning to ALL* those who refuse to be COMPLIANT*)

And curse #3: “”May you find what you are seeking.” (another ominously coded asteistic statement garrulously disguised in well-meaning words)…

In Andrew Lobaczewski controversial book, “Political Ponerology”, (2006) he argues that what we are witnessing in the economic-sphere should not take any of us by surprise for it has been on the cards for a 100 years – yet folks are losing their “shirts” and their minds over what will be an inevitable debacle of Biblical proportions…

He contends: “In a pathocracy, all leadership positions, (down to village headman and community cooperative managers, not to mention the directors of police units, and special services police personnel, and activists in the pathocratic party) must be filled by individuals with corresponding psychological deviations, which are inherited as a rule. However, such people constitute a very small percentage of the population and this makes them more valuable to the pathocrats. Their intellectual level or professional skills cannot be taken into account, since people representing superior abilities (who are also psychopaths) are even harder to find. After such a system has lasted several years, one hundred percent of all the cases of essential psychopathy are involved in pathocratic activity; they are considered the most loyal, even though some of them were formerly involved on the other side in some way…

Under such conditions, no area of social life can develop normally, whether in economics, culture, science, technology, administration, etc. Pathocracy progressively paralyzes everything. Normal people must develop a level of patience beyond the ken of anyone living in a normal man’s system just in order to explain what to do and how to do it to some obtuse mediocrity of a psychological deviant who has been placed in charge of some project that he cannot even understand, much less manage. This special kind of pedagogy – instructing deviants while avoiding their wrath – requires a great deal of time and effort, but it would otherwise not be possible to maintain tolerable living conditions and necessary achievements in the economic area or intellectual life of a society. Even with such efforts, pathocracy progressively intrudes everywhere and dulls everything…

Therefore, to mitigate the threat to their power, the pathocrats must employ any and all methods of terror and exterminatory policies against individuals known for their patriotic feelings and military training; other, specific “indoctrination” activities such as those we have presented are also utilized. Individuals lacking the natural feeling of being linked to normal society become irreplaceable in either of these activities. Again, the foreground of this type of activity is occupied by cases of essential psychopathy, followed by those with similar anomalies, and finally by people alienated from the society in question as a result of racial or national differences…

The phenomenon of pathocracy matures during this period: an extensive and active indoctrination system is built, with a suitably refurbished ideology constituting the vehicle or Trojan horse for the purpose of pathologizing the thought processes of individuals and society. The goal – forcing human minds to incorporate pathological experiential methods and thought-patterns, and consequently accepting such rule – is never openly admitted. This goal is conditioned by pathological egotism, and the possibility of accomplishing it strikes the pathocrats as not only indispensable, but feasible.”

In layman’s script: IT’s ALL LIES, DAMN LIES & ROCK ‘N’ ROLL hatched by psychopaths, virulent LIARS and demons cloaked in the garments of men….

The sons of LIBERTY* says it well!!!

http://dont-tread-on.me/who-are-the-powers-that-be/

http://3.bp.blogspot.com/-zVmfMTztqJo/TjxPNoiUocI/AAAAAAAADdY/-atWAyEf8W4/s1600/Cartoon_LOL_01_Progressive_Republicans_vs_Progressive_Democrats_1912.png

http://www.bbc.co.uk/news/business-14366054

S & P has admitted that part of the decision to downgrade was political due to the rancour in Congress as the politicians tried to find their way through this Debt ceiling/Tax reform maze. Lost in the discussion is whether part of the downgrade is the criticism that the CRAS received after their high ratings for the Financial Products (mortgage backed Securities) that were at the heart of the Financial debacle which was a major part of the recession.

The Financial meltdown led the Obama administration to sponsor the Financial Services Reform Act which was passed in December 2009 before the newly elected “Tea Party” activists took their seats.

I never overlook personal animosities when it comes from decision makers even when the stakes are this high.

Human nature at work

Just saw this piece on NPR

August 8, 2011

Turmoil in the financial markets has coincided with an annual fishing trip for economists and top executives deep in the woods of Maine near the Canadian border. While the economists were together, Standard and Poor’s took the unprecedented step of downgrading the U.S. government’s credit rating.

Every year at this retreat by Grand Lake Stream some of the top minds in finance gather to go fishing in canoes with guides, catch up with each other and put their heads together about the state of the nation’s economy. Some work for firms where they’re not supposed to make public statements or forecasts.

“Here there’s no such limitation,” says Barry Ritholtz, director of research at the money management firm Fusion IQ. “People speak more honestly. I get to go out with guys and see what they really think.”

“What’s interesting this year, there’s a pretty broad distribution of opinions,” says Ritholtz, who also writes about investing. “It’s not clear that everyone is bullish or bearish. I think there are expectations of a slowing economy increasing expectations of recession from the crowd.”

Opinions vary widely on how bad this current slow patch in the economic recovery will be. As they do with regard to the downgrade of U.S. Treasuries by the ratings firm S&P.

Since Friday night, the economists, hedge fund managers and analysts have been talking about it constantly.

“The downgrade was a mistake,” says Nouriel Roubini, a NYU professor who famously predicted the housing market crash and recession before the vast majority of other economists. “S&P could have waited a few months to see whether Democrats and Republicans reached an agreement on deficit reduction.”

Roubini believes that in this fragile economic environment the downgrade could cause unnecessary damage.

“It’s gonna cause more stock market correction. It’s going to reduce business, consumer and corporate confidence. It’s going to increase the risk of a double-dip recession, if not insure it,” he adds.

Some people at the retreat wonder whether S&P might be over-reaching — being too aggressive with ratings now, after being far too lax a few years ago. The major ratings firms give AAA ratings to securities that were in fact quite risky in the run-up to the financial crisis.

“Is this a cover for the fact they missed the whole AAA thing and they missed the subprime, and they were in fact helping spawn it,” asks John Mauldin, president of Millennium Wave Investments, who has written a book about the sovereign debt problem.

“To suggest that the United States is in a place yet where we’re not going to pay our bills seems to me rather preposterous,” he adds.

One of the best known and respected executives in the financial world, who did not want to be quoted directly, said he thought the ratings downgrade would probably cause a little short-term market turmoil. But after that it wouldn’t really be a big deal at all.

And some economists thought the downgrade could send a message to lawmakers to get serious about coming up with a long-term debt reduction plan.

“What the ratings agency has done is said if you want to sit in Washington and act like fools, we are going to call you on it,” says Cumberland Advisors chief economist David Kotok, who organized the retreat. “Good for S&P.”

As far what this all means for the stock market this week, there was disagreement there too.

That led to some friendly wagering during lunch about whether the Dow will close down more than 300 points Monday. So it turns out making bets on the economy is how economists have fun.

.
Make me wanna holler The way they do my life
Make me wanna holler The way they do my life
Dah, dah, dah Dah, dah, dah

@ Alien et al
Please note that no US President has ever been re-elected with an unemployment rate over7%. So BO is on shaky ground as I am confident that the US will be in recession by end of Q1, 2012. I don’t blame BO as he is largely the titular victim of 30+yrs of fiscal and financial STUPIDITY.

David Ellis who is Barbados’ leading journalist called many of you liar for suggesting a double dip is on the horizon. His defense, economists/analysts around the world indicate there is too much uncertainty to know what is going to happen.

10 REASONS WHY THE STOCK MARKET WILL CRASH…

1. Insider Selling: An Oversupply of paper

2. A Rally Based on Short Covering, Low Volume, and Bankrupt Companies

3. Bullish Sentiment and Market Psychology

4. Short the USD, Long Everything Else

5. Deteriorating Fundamentals and Rising Income Dispersion

6. The Chinese Commodities Bubble

7. Trade Protectionism, Socialist Tones, and Government Intervention

8. Money Supply and Credit Contraction

9. Market Complacency

10. Europe

(cited from R.Baggio September 24th 2009)

@David | August 7, 2011 at 8:43 PM | Here are some exchanges among some of Barbados’ finest including the talk show moderator which has come under some criticism by her inclination to be verbose and aloof.
———————–
Looks like Maureen dismissed your comments and you’re annoyed about it. LOL

@Moneybrain who wrote:
@ Sarge
This is why Democracy is overrated, especially CORRUPT DEMOCRACY.
Benevolent Dictatorship or very strong statesman like leadership is what was and is required.
—————————-
I agree with you 100%.

“… David Ellis who is Barbados’ leading journalist ..”

Jesus H Christ it does not get any better than this … Hah ha ha haa murdahhh … Lard come fah yah world … !

Bank of America stock down -20.31%

Freddie Mac reports 2nd quarter loss, asks for $1.5B in federal aid – AP

Again, why is Owen Arthur so quiet?

The current state of economic of affairs in the world, Barbados included is ready made for the widely recognized economic guru Owen Arthur.

@Alien

Are you saying that Arthur is playing politics when the country needs its best economic brain?

Well is been the end of the first trading day since the downgrade. The stock market has tanked but the instruments that were downgraded, US government debt, rallied. So far the markets seem to be ignoring S&P, but one trading day does not a trend make.

The risk of a double dip recession is now very real.

@Dr. Robinson

You should share your view with Maureen Holder (VoB Moderator) who dismissed David (BU) when similar opinion was shared on FB based on the unraveling events.