“You ain’t a beauty, but hey you’re alright.” The rating agencies chimed in last night in response to the lack of a deficit reduction deal and all reaffirmed their ratings. Fitch though said they will likely revise the outlook to negative next week. Moody’s said “failure to reach an agreement would not by itself lead to a rating change.” S&P said the lack of a deal was consistent with their downgrade months ago to AA+ and in order to keep that rating, they said “we expect the caps on discretionary spending as laid out in Budget Control Act of 2011 to remain in force.” I’ll say this again as it’s not rocket science, it’s simple math and a dose of honesty: the growth rate of the country’s debts and deficits are driven mostly by Medicare, Medicaid and Social Security and any deal that doesn’t PERMANENTLY change the spending trajectory of them will not matter to the overall numbers. Tweaking tax rates and discretionary spending are red herrings based on math, not ideology. On defense spending, do we really need a military presence in 150+ countries? Ok, I’m done with this political discussion as I’ll say bluntly, I don’t like politicians. In Europe, Spain sold 3 month bills at a yield of 5.11% vs 2.29% yield paid last month and compares with a US 3 mo bill yield of .01%. Spain had to pay 5.23% to sell 6 month bills vs 3.30% last month. The US pays .05%. The euro basis swap is narrower by 5 bps but US$ 3 mo LIBOR reached .50%. As we celebrate Thanksgiving on Thursday, Merkel, Sarkozy and Monti will have lunch together as all eyes focus on the new governments in Italy and Spain and Germany wants the ECB to not be further dragged into the bailout game.

Category: MacroNotes

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to ““You ain’t a beauty, but hey you’re alright””

  1. digistar says:

    Peter,

    You left out several really big parts of the deficit problem in the U.S.:

    1. Historicall, outrageously low tax rates, especially for rich people. (Are you a 1 per-center?)

    2. Unfunded wars in Iraq and Afghanistan.

    3. Social Security receipts being siphoned off to pay for other government functions.

  2. econimonium says:

    Peter,

    You keep spouting the same nonsense about Social Security and you should know better. The only “right” thing to do here is raise the cap and the problem is solved. Or are you telling me that at your income level you are unwilling to help fund the less fortunate elderly? So just stop it, we all see through this. You need to switch tactics here.

    I agree with you on Medicare, but not in the way you probably want. I think we should move towards a single payer system as soon as possible. If we made firm commitments to do that, I bet you that the medical establishment would find at least 10,000 ways to contain cost rather than give up it’s monied position. Nothing like a little tough love for incentive here.

    Thirdly you neglect to mention if we just taxed upper income people at the rate of the Clinton administration, we’d go a long way to closing these problems. Also add to it a reduction in the military and no more unfunded wars and I bet we’re ahead.

    Stop pushing your political agenda on people and stick to economic analysis. It’s wearing thin.

  3. gman says:

    4. Actual debt service for the US government at 30YEAR low!

  4. Steve Hamlin says:

    “I’ll say this again as it’s not rocket science, it’s simple math and a dose of honesty: the growth rate of the country’s debts and deficits are driven mostly by Medicare, Medicaid and Social Security and any deal that doesn’t PERMANENTLY change the spending trajectory of them will not matter to the overall numbers.”

    And I’ll say it again, so that Mr. Boockvar can speak with honesty in the future: Social Security is NOT a driver of future fiscal budget deficits or increasing federal debt, both in fact and by law. Please stop conflating SS with on-budget items, and stop saying that we must cut SS in order to lower the deficit. You don’t know what you’re talking about.

  5. farfetched says:

    “Social Security receipts being siphoned off to pay for other government functions.”

    Exactly, like when our (how can we use this word?) “leaders” ??? fail to come to an agreement to raise the debt ceiling (don’t get me started) and to run the government they use “government trust funds”.

    Exactly what “government trust funds” might we be talking about?
    Retirements, social security, medicare, etc of course.

    We know our government is a shaky addict in need of their fix. They act exactly like addicts, which means we have to lock up our valuables, hide the purse and wallet, and lock the doors because we have “JUNKIE GOVERNMENT”.

    Now, if we can just stop electing crack heads……

  6. ilsm says:

    HAMLIN,

    Wrong.

    The war profiteers take 5% of GDP in the US. In German it is 1.4%.

    That is $450B a year too much plundered or siphoned from the productive economy to blow things up in the empire.

    Tax receipts are 3% GDP less than the historic average.

    It is not yet the pillaging of the medicine insurance cabal!

  7. Union Agitator says:

    So your answer is screw the old people? For shame.

  8. rd says:

    If Congress does nothing, then there is $1.2 T through spending cuts over the next decade and substantial revenue increases from the expiration of the Bush tax cuts and AMT indexing.

    So, the deficit problem would be close to being resolved if Congress simply passed a continuing resolution for extending this year’s spending for two years and went on vacation until mid-2013.

    Taking away the keys and parking the car is much safer than allowing a drunk driver at the wheel.