Our financial system is crumbling this week.

[longhornbaseball]

The US is not an exception. The US is a monopoly supplier of its own currency, and the currency is not pegged to something silly like gold or some other country's currency. Dollars come from nowhere. They are poofed into existence when the government spends money. That the ratings agencies even rate the credit risk of currency issuers speaks to how inept they are at understanding how the fiat monetary system works. The only way we can default is if we choose to based on irrational fears that we are somehow running out of something which we have an infinite supply of. The bond market understands this, and that is why yields on treasuries won't jump significantly until the Fed decides they should by raising the fed funds rate.

[Joe Shlabotnik]

Quoting someone else:

We had a massive party, it was banal and exclusive, it was Romanesque in debauchery. The Capitalism thingy dark underbelly became the rule rather than the exception. Virtuous behaviors under the old rules of capitalism no longer apply and are in fact punished. Until that changes, we will continue to sink into this stinky tar pit of despair as those least able to pay, least able to capitalize on their own productive value will be squeezed until there is nothing left to squeeze. It matters not how smart, savvy or enabled an individual is, its all up for grabs as the malinvestments shift again and party ends. The hangover will be massive.

[AdmiralKird]

The US is not an exception. The US is a monopoly supplier of its own currency, and the currency is not pegged to something silly like gold or some other country's currency. Dollars come from nowhere. They are poofed into existence when the government spends money. That the ratings agencies even rate the credit risk of currency issuers speaks to how inept they are at understanding how the fiat monetary system works. The only way we can default is if we choose to based on irrational fears that we are somehow running out of something which we have an infinite supply of. The bond market understands this, and that is why yields on treasuries won't jump significantly until the Fed decides they should by raising the fed funds rate.

Yeah, government default chance = 1x10^-10% (I'm trying to account for the apocalypse, asteroid impacts, gamma ray bursts, etc). But I guess with a fiat supplier you need some kind of debt rating to account for inflation risks. After comparing TIPS yields with standard ten year treasury bills, the inflation risk over the past few years hasn't been increasing or decreasing, its pretty much the same. So I guess Standard and Poor's expects a heightened chance that the government might default, which in the absurd scenario that did occur would likely also be accompanied with hyperinflation, but that possible future should also be somewhat, somewhere visible in the bond market so this credit rating degradation really doesn't make any sense.

My guess is S&P is staffed by a lot of people who watch FoxNews and want to send a message to the president.

[docellis]

The insurer AIG is suing Bank of America Corp to recover more than $10 billion of losses from a "massive fraud" on mortgage debt, deepening the morass of litigation faced by the largest U.S. bank.

http://www.reuters.com/article/2011/08/ ... ews&rpc=71

[IMADreamer]

Awesome, one gang of crooks suing another for absurd amounts of our money.

[sighyoung]

[Jocephus]

A very interesting line in S&P's full report (.pdf) wherein it downgraded the sovereign debt of the US from AAA to AA+.

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise
revenues, a position we believe Congress reinforced by passing the act.

First, it's interesting (and correct) that that the GOP is rigidly anti-revenue, and would resist any measure that would raise revenue.

That being said, as S&P itself notes, the tax cuts are due to expire, meaning no measure is needed to get rid of them. They'll just go away.

Still, you have to wonder if Obama will end up agreeing to some kind of deal whereby the tax cuts stay in exchange for, say, a payroll tax cut or an unemployment insurance extension.

Read more: http://www.businessinsider.com/sp-does- ... z1USqKcdTn

[cpebbles]

Still, you have to wonder if Obama will end up agreeing to some kind of deal whereby the tax cuts stay in exchange for, say, a payroll tax cut or an unemployment insurance extension.

Or as a show of goodwill in advance of his next showdown with Republicans, like he did last time.

Democrats still buying that, btw?

[Jocephus]

i believe romney today has said the lowering of the us rating is all obamas fault

[IMADreamer]

I'd be willing to bet the tax cuts are extended. There will be some huge Washington drama, the President will cave as always and they will go on and on. Maybe even be made permanent.