Our financial system is crumbling this week.

[heyzeus]

The Dow Jones is down almost 2% today. S&P downgraded our nation's debt rating to "negative," largely over fears of whether Congress will raise the debt ceiling to prevent default. Boehner is saber-rattling about not raising it, in order to appease the tea party hardliner base. I have little doubt that they will, though, as there's no way congress would risk US defaulting on its debts.

[heyzeus]

Today would be a good day to take all of your money out of the bank, exchange it to a commodity metal (let's say copper), and put it under your mattress.

If you had all done what I said and taken your life savings (which I generously will assume to be $100,000) and put it all into copper on September 15, 2008, today you would have $280,000 worth of copper today.

Which would be a perfect way to start minting your own copper-based currency to supplant the U.S. Dollar, considering our debt rating is now negative and we'll default on our debt any day now, leading to the every-man-for-himself holy race war that Glen Beck has been vividly dreaming of for years now. Copper is the future!

[G. Keenan]

Good for S&P. Maybe it'll help get Congress off their collective asses.

Nate Silver wrote a good analysis a few days ago of the debt ceiling showdown and the economic and political fallout that might result from not raising it. In his analysis the economic havoc that a failure to raise it would wreak would spell political suicide for just about every politician involved.

Link

[Arthur Dent]

S&P downgraded our nation's debt rating to "negative," largely over fears of whether Congress will raise the debt ceiling to prevent default.

They cut the outlook not the rating meaning they are warning that they might someday decide to lower the rating. For example, from Bloomberg:

“We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,” New York-based S&P said today in a report. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

And despite all the hyperventilating, there doesn't appear to be any particular reaction in the treasury market. The Republicans will posture about the debt ceiling to extract whatever concessions they can, but will ultimately make sure it gets raised. Not raising it would be moronic and gain nothing for anybody involved.

Longer term, the problem is the same as it's been for some time. Taxes will need to be raised to get back to the revenue levels of decade ago, and we will have to control health cost inflation. It would be great if Congress would get to that task instead of posturing about the near term and proposing absurd plans using this stuff as a rationalization for even lower taxes on the rich.

[planet planet]

S&P downgraded our nation's debt rating to "negative," largely over fears of whether Congress will raise the debt ceiling to prevent default.

They cut the outlook not the rating meaning they are warning that they might someday decide to lower the rating. For example, from Bloomberg:

“We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,” New York-based S&P said today in a report. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

And despite all the hyperventilating, there doesn't appear to be any particular reaction in the treasury market. The Republicans will posture about the debt ceiling to extract whatever concessions they can, but will ultimately make sure it gets raised. Not raising it would be moronic and gain nothing for anybody involved.

Longer term, the problem is the same as it's been for some time. Taxes will need to be raised to get back to the revenue levels of decade ago, and we will have to control health cost inflation. It would be great if Congress would get to that task instead of posturing about the near term and proposing absurd plans using this stuff as a rationalization for even lower taxes on the rich.

Why can't anyone in Washington understand that we shouldn't make heavy cuts in the very near term due to the fragile economy, but we very much need to address the midterm? Obama pisses me off almost as much as the Republicans in this regard as he is completely punting and kicking the can down the road. How can you commission a committee to look into the debt and then completely ignore and distance yourself from the findings? They need to raise the retirement age and start making longer term structural changes that will actually affect the debt to GDP ratio.

[G. Keenan]

Screw raising the retirement age. Let's just close most of the tax loopholes and stop spending so much money on blowing [expletive] up.

Eliminating these three exemptions alone would increase annual revenue by $1.2 trillion.

Bam. Deficit closed. Now let's all hang out, invent cool new technology, create art, advance culture, and stop spending so much money and so many human lives on maintaining our empire. It's more trouble than it's worth.

[Transmogrified Tiger]

Screw raising the retirement age. Let's just close most of the tax loopholes and stop spending so much money on blowing [expletive] up.

Eliminating these three exemptions alone would increase annual revenue by $1.2 trillion.

Bam. Deficit closed. Now let's all hang out, invent cool new technology, create art, advance culture, and stop spending so much money and so many human lives on maintaining our empire. It's more trouble than it's worth.

Glad we got that figured out.

[Arthur Dent]

Screw raising the retirement age. Let's just close most of the tax loopholes and stop spending so much money on blowing [expletive] up.

Eliminating these three exemptions alone would increase annual revenue by $1.2 trillion.

Bam. Deficit closed. Now let's all hang out, invent cool new technology, create art, advance culture, and stop spending so much money and so many human lives on maintaining our empire. It's more trouble than it's worth.

The tax breaks for employer provided health insurance and 401k's are at the core of our crappy health care and retirement systems. I'd be all in favor of getting rid of them if they are replaced with something better, but whatever that is would likely cost similar amounts of money. The dividend and capital gains tax breaks overwhelmingly benefit the already wealthy without any discernible social benefit. The mortgage interest exclusion is a bad idea, but it's not going anywhere except as part of some deal that lowers other taxes. Congress just got through handing out more large checks to home buyers. If they are unwilling to let home prices simply drop back to the long term trend, it's going to be near impossible to pass legislation that would push home values below that trend (though more affordable prices for a basic human need would be a very good thing in the long term).

All of which is to say, that I'm suspicious of all claims of tax broadening as a way to generate more revenue. There are good cases for getting rid of many of these breaks especially as part of a plan to replace them with more fair and efficient alternatives, but the main point is that taxes are going to have to go back up at least to the levels of the awful, tax stifled Clinton years which would still be way lower rates than paid by almost all other wealthy nations.

But yeah, this whole debt/deficit issue gets enormously more attention than it deserves. Solutions are readily available that would not be particularly painful if we were capable of making actual decisions. The real problem is a dysfunctional political system. The continuing widespread misery caused by massive job losses and essentially no recovery ought to be a much greater concern. And getting people working again would help government budgets at the same time. The fact that attention is overwhelming dedicated to the much overrated debt issue already guarantees a loss no matter the outcome.

[wart57]

stop blowing [expletive] up?

That would be one hell of a campaign slogan.

If I am elected, I will stop us form blowing [expletive] up.

I would fell better if someone could get the other guys to stop blowing [expletive] up so we don't have to blow [expletive] up as well.

[Hungary Jack]

stop blowing [expletive] up?

That would be one hell of a campaign slogan.

If I am elected, I will stop us form blowing [expletive] up.

I would fell better if someone could get the other guys to stop blowing [expletive] up so we don't have to blow [expletive] up as well.

There's a TV show basically dedicated to watching [expletive] get blowed up. I think it's "Destroyed in Seconds."