Moody's: U.S. Debt Crisis May Hit In 2013

Discussion in 'Economy' started by boedicca, May 9, 2010.

  1. boedicca
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    boedicca Uppity Water Nymph Supporting Member

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    Greece is indeed the Canary in the Sovereign Debt Coal Mine.

    Moody's is now predicting that the debt crisis in the U.S. may explode as early as 2013 (which means it could be even earlier - especially given the extremely optimistic GDP growth assumption in the Obama budget).


    Spiraling debt is Uncle Sam's shock collar, and its jolt may await like an invisible pet fence.

    "Nobody knows when you bump up against the limit, but you know when it happens it will really hurt," said fiscal watchdog Maya MacGuineas of the Committee for a Responsible Federal Budget.

    The great uncertainty about how much debt is too much has tended to make fiscal discipline seem less urgent, rather than more. There is no obvious threshold beyond which investors will demand higher real yields for holding U.S. debt. Vague warnings from ratings agencies about the loss of America's 'AAA' status haven't added much clarity — until recently.

    In the wake of the financial crisis and recession, Moody's Investors Service has brought new transparency to its sovereign ratings analysis — so much so that 2018 lights up as the year the U.S. could be in line for a downgrade if Congressional Budget Office projections hold.

    The key data point in Moody's view is the size of federal interest payments on the public debt as a percentage of tax revenue. For the U.S., debt service of 18%-20% of federal revenue is the outer limit of AAA-territory, Moody's managing director Pierre Cailleteau confirmed in an e-mail.

    Under the Obama budget, interest would top 18% of revenue in 2018 and 20% in 2020, CBO projects.

    But under more adverse scenarios than the CBO considered, including higher interest rates, Moody's projects that debt service could hit 22.4% of revenue by 2013.


    U.S. Debt Shock May Hit In 2018, Maybe As Soon As 2013: Moody's - IBD - Investors.com


    If 22.4% is the 2013 downwide scenario, then crossing the 18%-20% threshold will occur earlier. Perhaps this is what the Mayans were predicting as the end of the world as we know it in 2012.
     
  2. Paulie
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    Paulie Platinum Member

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    The Mayan's didn't necessarily predict the 'end of the world'.

    Their calendar expires, and people just assume it means the end of the world.
     
  3. boedicca
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    boedicca Uppity Water Nymph Supporting Member

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    Sarcasm, bub. Sarcasm.

    But back to the topic: The U.S. is at significant risk of a Greek Sovereign Debt Crisis On Steriods.

    If we don't stop the insanity now, our economy is going to collapse in a few years.
     
  4. Paulie
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    Paulie Platinum Member

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    I'm with you on the debt problem, but we aren't going to collapse until everyone refuses to accept the dollar as the world's preeminent currency.

    Before anyone does that, there needs to be someone who could replace the US as a military superpower. Because of course, it is our military that we use to strong-arm nations into accepting the dollar to begin with.

    A little logic has to go into this. If everyone shit cans the dollar, the world goes to hell in a day. As long as everyone continues to pretend it's worth something, we're just a nation continuing to rack up debt.

    We can rack up debt endlessly until someone finally says no, but that 'no' will have to come from the end of a gun barrel.

    Who's going to come stop us?
     
  5. boedicca
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    boedicca Uppity Water Nymph Supporting Member

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    What's going to stop us?

    The laws of economics. A country cannot solve a debt crisis with more debt. To think that we can continue on an irresponsible spending binge without any negative repercussions is delusional.
     
  6. Paulie
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    Paulie Platinum Member

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    You didn't read what I wrote.

    I didn't say WHAT is going to stop us, I said WHO.

    We are not little old Greece. We're the world's preeminent super power. We get away with what Greece can not.

    We will not have a "crisis" until the Dollar is no longer accepted.

    Do you see that happening in your lifetime? And if so, what will replace it? Because no one is going to can the dollar without something to replace it.

    Laws of economics only go so far. Logic kicks into place at a certain point.

    And you're talking to an anti-fed person, too. And I STILL stick by what I say.

    I used to be a doomsdayer who thought the dollar would soon be toast, and that we'd collapse as an economic power.

    And then I woke the hell up.

    We're in trouble with debt. That is not debatable. But we are not going to collapse until someone else can take our place.

    So again I ask, WHO is going to stop us from racking up debt, and WHO is going to take our place?
     
  7. Toro
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    Toro Diamond Member

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    I think the "Who" is if there is a buyers strike for US debt outside our borders. I get that China and the US are inextricably entwined, but that does not mean China will buy our debt forever under any and all circumstances.

    Foreigners don't even have to stop buying our debt. They just have to stop buying it at the same rate. That can happen without the dollar losing its status as the world's reserve currency.

    In the end, all fiat currencies are linked. This is why the dollar will not "collapse." What will it collapse against, the euro, the yen, the pound? America isn't Greece and shouldn't be thought of as such. But it doesn't mean that the government cannot destroy the value of the dollar since doing so destroys the value of all fiat currencies.

    Ultimately, I think that what happens is that the government monetizes our debt, creating inflation and inflating away our liabilities. The best thing that might happen to the US would be to have a Greece-like scare to shake Americans up and put the country back on sound footing. Sometimes a crisis is necessary to make people change their behavior.
     
    Last edited: May 9, 2010
  8. Neubarth
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    Neubarth At the Ballpark July 30th

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    So many errors in your post, Toro! Most of them are related to the insane crap the Ron Paulites keep on spouting like an Indian Mantra.

    We do not need the foreign governments to buy our debt. I have pointed out to you on numerous occasions that the FED can buy our debt while at the same time refusing to accept interest on it, and consequently just putting the interest back in the treasury. It is the most perfect solution to a most difficult problem! Say AMEN to that! Who do you think is buying most of our large denominations of debt right now?

    Monetization of our debt does not always directly lead to inflation but does seem to be linked to it. The FED does not need to monetize our debt. They can carry ten times the present debt as they presently carry as long as they are not asking for interest payments. As long as their "stockholders" are not clamoring for increased distributions of profit in the form of dividend payments, they can buy 100 Trillion dollars of our debt without blinking an eyelash. How many stockholders does the FED have? Yep, it is the most beautiful thing ever created.

    Right now, the FED does not set the value of our currency. The reality is that China is doing so by directly linking their Yuan to our Dollar. They most certainly would not want to see our dollar fall so as to make American products less expensive than Chinese.

    Remember, in spite of this Depression, we are still the leading manufacturing country in the world. That manufacturing base coupled with our agricultural production is the "GOLD in our treasury." Manufacturing and Agricultural production has made us the most wealthy country in the world. The Gold in Fort Knox has had no impact on our wealth and never will.

    We need to increase THAT "gold" and sell as much of the metal as we can now that the price has gone up. After all, it is just a pretty yellow metal that people make jewelry out of.
     
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    Last edited: May 9, 2010
  9. Neubarth
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    Neubarth At the Ballpark July 30th

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    Gosh, I take a week off and enjoy a vacation, and I come back and everything remains the same.!

    There will never be a collapse as long as we are manufacturing and agricultural rich. We have too much product to sell, and a lower dollar will make our products more competitive on the world market. The world can not afford that. We are in the driver seat as long as we have that manufacturing edge and the farming capacity.
     
    Last edited: May 9, 2010
  10. Neubarth
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    Neubarth At the Ballpark July 30th

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    Just like I say about Gold, "It is a pretty yellow metal that you can make jewelry with. Because of that, it is worth whatever people are willing to pay for it."

    Since Gold can fluctuate up and down we should never back our currency with it. Besides, there is not enough gold in the world to back the American Dollar.

    The American Dollar is quite frankly backed by the production might of the United States. Our manufacturing might backs the dollar. Our farming might backs the dollar. Our resource might backs the dollar. With that in mind, we are the mightiest country in the world and no other country has the capacity to dethrone us. Stupid leadership as we have clearly seen can rob us of our manufacturing jobs and shut down the farms.

    If that is happening, it is time to get rid of the stupid leadership. We can do that violently or peacefully.
     

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