I get we all want some sort of sacrificial lamb, but blaming Geithner is a little too much.

Republicans Want Geithner to Walk The Plank After Credit Downgrade - FoxNews.com

If you don't want to raise taxes, it should also be true that you don't want to cut spending. Both reduce demand.

I don't know where the line on the Laffer curve actually works, but if it's at 35% we've got a lot of room. Effective tax rates are in the low twenties. The marginal rate doesn't really matter.

No, it's not a way to rebut libertarians. Actual facts do that. I'm just curious why all the people screaming that inflation is secretly super high like you are not taking advantage of it.

Conspiracy theories are nice to bat around online, but no one on that side believes it enough to risk their own ass on it.

I think the problem we run into is that during a recession, you don't want to raise taxes or cut spending. But we overspent so much during good economic times, we have no choice. It sort of comes down to picking the lesser of two evils.

I think a mix of both needs to happen if the goal is to fix the debt problem. Raising taxes on the wealthiest is not going to have the catastrophic effect that people claim it will. At the same time, when economic times are good, we need to level the tax rates a bit so as they say "everyone has some skin in the game".

Ultimately the only thing that matters right now is jobs. Getting those back to better levels does way more for fixing the deficit than recent spending cuts.

How would somebody take advantage of food prices inflating? Assuming they can't go out & purchase General Mills.

I don't think anybody is arguing that some things are not going inflating...I think its the things we cannot live without like food, water, gas, energy, etc. are rising while most non-essential items are deflating. It was mentioned earlier as well, but imagine the gas prices when (or if) the economy actually gets back on track. It will be like 2008 all over again.


Couldn't agree more but the caveat is that these jobs should (at this point since we've screwed around for too long) be prioritized to reduce our outgoing cashflow as a nation...and not just used to dig holes & fill them back in. I'm of the opinion energy policy is the best way to do that. While there may be some other things that can be sprinkled in, nothing will have the same effect as no longer dumping hundreds of billions into a bottomless pit. I dont care if its nuclear, wind, clean coal, solar, or some combination of these. Whatever it takes to get independent & self sufficient will do the trick so we can stop enriching others as well as financing both sides of the same war.

Even if these technologies were to cost double (and perhaps triple) what we pay for oil...the multiplicative effect of the funds staying in the US economy will grow other areas of the economy enough to compensate.

But gas prices are about global scarcity, not monetary inflation. Same with most commodities. Monetary inflation can't happen in only a few sectors, it would have to be broad, because the money is worth less. Rising prices doesn't always equal monetary inflation.

I'm talking inflation in general. If panerd believes we are "printing money" and inflating our dollar, he should be borrowing as much as he can.

Your Yield = Borrowing Rate - Inflation

So if he can get a loan at 3% and inflation is at 5%, he's making 2% on the deal. Libertarians like to point to their own math that calculates inflation at numbers like 10%. Which is why I say if you believe it, go out and borrow as much money as you can under 10% and make a killing.

Gas prices are actually relatively cheap right now and has been dropping. But many of the things you listed have other variables at work. I guess what I'm saying is those prices aren't rising because of inflation as panerd suggested. You can argue that we need to find ways to lower prices on essentials, but curbing imaginary inflation is not one of them.


I agree 100%. I think infrastructure should have been the entire goal of creating jobs. Building new energy technologies, new transportation systems that made sense, and anything else that is starting to crumble and in need of upgrades that can be efficient for the next 100 years.

Unfortunately, the Stimulus Bill was crap, focused too much on tax cuts which didn't add jobs, and Obama has lost his credibility when it comes to that. You can't turn to the people and say "lets have another stimulus, just ignore the massive one I fucked up a couple years ago".

Just curious, what country are you living in now? I didn't realize you had left the U.S.

I'm looking at it in a bigger picture. Inflation adjusted over time, we're paying right about what we should be paying if you look back in history. And compared to much of the industrialized world, our prices are much cheaper. You're paying over $5/gallon in most of Europe.

Anyway, it was more toward panerd's statement about gas prices going up due to inflation while over the last few months, they've gone down.

I'm pretty sure that most people would be thinking more along the lines of this snippet from the latest Consumer Price Index summary Despite the recent declines, the gasoline index has increased 35.6 percent over the past 12 months.

I won't pretend to know anything about the equity markets, but the bond market could have a bit of an opposite reaction of what Joe Public might expect. Most bond portfolios have "average credit quality requirements." Most bond managers anchor those portfolios to meet those requirements with treasuries. So, to the extent a downgrade by S&P matters (many requirements will allow you to take the highest or middle of the three major credit rating agencies rather than tying you to S&P), bond managers may have to buy more treasuries in order to maintain the portfolio's average credit rating.

So, you could see more demand for treasuries and a sell off of riskier high yield bonds which weigh down an average credit rating.

The bond market never gets covered, so this isn't likely to be a headline on Monday.

The related thing though is that you may not see a rise in interest rates because people won't be afraid to buy treasuries or other government or agency securities.

Well, I guess maybe the error is in applying the term inflation. If you use the definition based on the US government's CPI...then inflation is probably inaccurate. But its the essentials that are the problem. The cost of essentials is going up while everything else drops relative to them. And because the majority of cash in circulation is sitting in corporation bank accounts, rather than in worker/consumer hands, this will continue since they (consumers) don't have the cash to inflate the areas that are dropping due to the essentials eating up their cash.

So, perhaps the application of the term should be better put into context, or the term stagflation used instead, but I think its a very real problem in the economy that will get worse before it gets better, should there be a return to more typical conditions.

I like what Obama is trying to do, we can't get there quick enough.
New rules to demand far higher fuel economy - Business - Autos - msnbc.com

Right, but global scarcity will come to a head if/when the economy comes out of this downturn. I'm not so certain it isn't already a problem that is holding back an upturn as the cost of essentials continues to go up and undermine any modest wage increases that people do get. Add in the uncertainty of such items for corporations and you have a climate where nobody is certain of the future costs and so is unwilling to take on non-essential costs.

As I noted in my response to RM, inflation may be the wrong term being applied but I do get the concern & the point isn't lost on me. You can't have $40 bread & $40 HDTVs and think that is healthy even if such a difference meant a flat CPI.

I agree its a good step but I hope to see us work more on non-oil based fueling as well. Especially for larger cities.

I agree on essentials going up, although I don't think the PCE has risen too much. One plus side is that housing is much more affordable. Shitty times though.

Housing is more affordable (and rightfully so, given wages) but at the cost of indebtedness of those in the market. I've said as far back that unwinding the housing bubble will be very painful and needs to be addressed as it will be a big detriment to those that need to go where their skills are needed...rather than simply using the best available labor.

Its definitely a real complex issue with moral hazard at the heart of it. But imho, the housing market will continue to drag down the economy until we find a solution that allows for a better mechanism to address underwater mortgages. Look at it this way...in 2007 the market really started going south, and only the worst mortgages or most over-leveraged people (including investors) were beginning to be impacted. Then 2008 came, and that drug in a new percentage of people who were a little better than the worst...then 2009 drug a few more underwater...then 2010 drug a few more...and 2011 is bringing a few more into the fold.

At some point...we're going to be dragging legitimate 20% down (or more), paid-on-time mortgages underwater depending on their timing to enter the market (and I believe we already have). So, when/if the more legitimate & traditional mortgage homebuyers from the 2003-2006 time period need to go where their skills are needed & can be best utilized...they either must sell with hopefully enough cash reserves, default, or stay where they are and get underemployed.

I don't claim to have all the answers to this but I do feel the solution at this point will need to be more than just "jobs" as we'll quickly find out that these potential new jobs won't be possible using US labor...and in fact, could wind up being a big exercise in outsourcing.

housing is the key to fixing the economy IMO. It'll release the cuffs from the economy and jobs too.

I think so as well. Maybe we're both a bit skewed in that since we went through it in FL, one of the worst bubbles and fallouts ever seen, but it is a gigantic lingering problem. And the biggest issue of moral hazard imo is...the people who simply defaulted in 2007/8 when the market went south are now most likely in the best shape financially as opposed to those who styaed in their homes and paid it over time. Now these same people can go and buy a house cash (if they've been fiscally responsible in the past 4 years), and in some cases, can be financed for a mortgage (depending on their default, and lots of factors of course).

That's why I say it isn't nearly as cut & dry any more and I knew this day would come when moral hazard had come full circle. If you just stopped paying your mortgage in 2007, your defaulted value was probably much closer than if you (foolishly?) paid your mortgage for the past 4 years and needed to sell now.

Similar to the underemployed & people who have simply stopped looking for employment statistics...I think the number of homeowners who would want to sell their home to go elsewhere for better opportunity is also much higher than the number of housing supply months would indicate.

I agree, but my point was in response to panerd arguing about secret inflation. Peak oil in particular is a huge concern, but that has nothing to do with monetary inflation.

Allowing bankruptcy judges the freedom to "cram down" mortgages would have been much better than HAMP, but God forbid the bankers take any sort of haircut.

Here is what I don't get about this, though. I thought the entire purpose of Mortgage Insurance premiums (traditionally required for non-optimal loans such as less than 20% down) was to protect the bank from defaulting borrowers. So, if that is true, why wouldn't the banks have more incentive to just push them through the system and let the MIP backer (AIG I suppose) repay them...which in turn, means the taxpayer ultimately pays it because we won't let AIG fail.

I guess I have a disconnect somewhere in there...because that is how I thought it was supposed to work.

Because for the banks the underlying mortgages weren't the real problem. The real problem was the amount leveraged against those mortgages. They still haven't really been honest about how many bad mortgages are being carried.

We would have been much better off if the TARP funds were given with the agreement that mortgages would be reduced by an equal amount, in essence giving TARP to homeowners and letting them give it all to the banks. But giving 700 billion to homeowners is a moral hazard and giving 700 billion to bankers is sound policy.

Ah...thats right. I forgot about the repackaging payouts part of the equation.

Yeah, my initial feeling on TARP was to give a certain % of credit towards a home sale which met some criteria (i.e. must be primary residence...not investment property) rather than trying to keep people in homes that they couldn't afford. That way, it would wind itself down slowly but not overly incentivize people to sell and try to collect money. Just a gradual de-leveraging.

LOL :D

In England last time I calculated it the price was a LOT higher than $5/gallon ...

1 US gallon = 3.78541178 litres
Litres price (av) = 136p
UK Average price per Gallon - 514.76p
In Dollars thats roughly a multiple of 1.62879 so $8.38435 per gallon

You'll know the price has gone 'high' over here when the gas stations stop displaying things in price/gallon and shift over to price/litre ...

Yeah, I've heard the argument about it being much more expensive in Europe & other places. The problem with that rationale is 2-fold:

1) Europe adds a lot more taxes than the US does onto the price of gas. You can argue that it is a good thing but it leads to part 2
2) Europe is a much more densely populated series of countries than the US (or even comparing them to states). The level of sprawl that the US has adapted as its "norm" outside of the larger cities is (rightly or wrongly)...much more damaging to a lower/middle income American due to the amount of daily driving needed.

I've been to Europe several times now and I would add

3) Smaller cars - hardly see SUVs, Trucks or Minivans
4) Diesel - better gas mileage on average
5) Public transportation is better - more apt to take bus, bicycles, scooters, subway etc.

I am reminded of the recent road trips I have take to California, going across Utah and Nevada. You would go 100-150 miles without seeing any signs of civilization except the pavement and billboards. That would be impossible in Western Europe (I think) or even in the Eastern US.

S&P guy on Fox News.

S&P Chief Explains Credit Downgrade; Rep. Paul Ryan, Bill Miller Talk Economic Policy; Tim Pawlenty on Iowa Chances - Interviews - Fox News Sunday - FoxNews.com

Great. Now to monitor Asian markets tonight for a taste of what tomorrow will bring.

I would probably buy into this early tomorrow morning.

And what would you buy?

S&P index fund.

Y'know, just off the top of my head here, the downgrade itself seems pretty reasonable to me.

I mean, if some of the first things we threatened not to pay were our social security recipients & our military, how much trust does our word on debts really deserve.

Yeah, I know it's more complicated than that, that emotional responses don't dictate lofty things like credit ratings of governments, etc, etc, etc.

But taken in that light, the actual response from S&P makes pretty good sense. Hell, I don't trust us either.

I noticed he never really explained how they screwed up the subprime mortgage ratings.

Well said Jon.

In a sense, we really aren't going to pay for a lot of what we've promised to pay for....we'll just restructure it. And if that doesn't work, we'll just print more of it.

To a point, we've always done this...but then, that makes me wonder why it took so long to downgrade us.

I've assumed inflation to back me up on a number of plays revolving around commodities. So I believe in the conspiracy theory enough to bet on it. Risk my ass, well probably not, when the herd gets scared enough short term prices can drop for as much as a year (particularly if there is excess inventory laying around)... that can make for a really annoying period of red.

You can take apart the CPI's own numbers and find disturbing trends, it helps you get around the weird time weighting system they use which conveniently screws up with the blip back when oil went crazy and the crash during the financial crisis. Just think back to what things cost in 2000, compare it today, and come up with your own gut feel of inflation.

I think 700 billion more than covers the mortgages payments for a year for every American mortgage (not just the underwater ones). It may not have been the best plan, but it is better than giving it to the bankers, who have claimed they are awesome and paid it back but we don't have a recovery to show for it, or houses anymore (yay foreclosures, we financed the bank's landgrab!).

If default risk was truly the problem taking that chunk of money and making a government backed pool of mortgages (where the government posesses all the land from deadbeat debtors) would stabilize many of the derivatives, although the real problem is the banks had created magical super-leveraged AAA garbage out of it with no real proportion to actual mortgages.

Going to get ugly Mon. Futures ...

Yikes - the Nikkei took a drop since I last checked.

I still think it's a real good opportunity after the initial drop on Monday. You can't tell me Pepsi is suddenly worth 12% less than a week ago, can you?

With the caveat of "past performance is no predictor of future gains" a metric followed by one analyst has proven consistently correct over the past 20 years.

Market Indicator with Perfect Record Just Signaled 'Buy' - CNBC

Treasury prices slightly up (interest rates slightly down) on flight to safety.

Treasury yields drop on safety bid after S&P cut - Bond Report - MarketWatch

I'm not sure how anyone can avoid laughing at the current situation.

Everyone should have KNOWN that they'd wait until the last minute to pass a debt ceiling deal.

Everyone should have KNOWN that it would fall well short of what was needed to stabilize the economy.

Everyone should have KNOWN that the stock market and world markets would react negatively to the bill.

It's embarrassing. People should quit acting surprised that our President and Congressional leaders (especially Reid and Boehner) f'd this up so badly. Those three people have a total lack of foresight that rubs off on everyone else. Until that changes, the economy is going to remain in a funk.

Barry Obama is an idiot. Then again I am not sure if he is a bigger idiot then the America public.

How would a bigger debt deal have stabilized the economy?

Maybe it would, maybe it wouldn't. But there was no way in hell this one was stabilizing anything and most saw it coming long ago. It was clear that a major debt reduction was needed and it was also clear that the yahoos in charge had no intention of doing that.

Debt Downgrade: Why Congress and S&P Deserve Each Other - The Curious Capitalist - TIME.com

Loved this writeup.

Yeah, just read it myself and was about to post it.

Crude is down to around 83 bucks. I wonder how long it will take to see a major rollback in pump prices. Would be nice if I could significantly reduce my fuel expenses for work. Due to a puddling contract I have no control if, this year has been awful.