Seeking Alpha

The point was made clear in today's warning from Moody's and should not be missed: There's no...

The point was made clear in today's warning from Moody's and should not be missed: There's no such thing as a "technical default." If the U.S. doesn't resolve its debt ceiling game of chicken soon, it will mean "default," plain and simple, with a downgrade to follow.
Comments (63)
  • HiSpeed
    , contributor
    Comments (1073) | Send Message
     
    Since the Fed has the power of the printing press, default is not going to happen any more so than it is already occurring via the Fed printing more of the fiat currency.

     

    Anyone who recalls the worthless rating agencies "performance" during the financial crises knows that they have zero credibility - their reaction reminds me of the guy who closes the barn door after the horses have escaped.
    2 Jun 2011, 06:26 PM Reply Like
  • beantowntrader
    , contributor
    Comments (52) | Send Message
     
    HiSpeed I fully agree. The rating agencies are spinning their recommendation to the US government as if raising the debt ceiling is very good for majority of the people in America.

     

    Every patriotic American knows spending beyond their means will only bring greater consequences for the future generations. No wonder many American families are not having children.

     

    To all those economist and supporters of raising the debt ceiling. Realize the measure of prosperity within a civilization is not by how much money a person makes but by how many children they are able to support and take care off. Without children there is no future to pass down the history of the civilization.

     

    The US government must face this reality and not raise the debt ceiling for the sake of our country's future. Printing money will solve nothing in the long run. Yet if as I speak out I know full well that the US government will most definitely raise the debt ceiling and the FED will continue with the QEs. Why should I bother to speak at all....
    2 Jun 2011, 06:57 PM Reply Like
  • Tricky
    , contributor
    Comments (1583) | Send Message
     
    Regardless of what you think about their politics or past performance, the job of a rating agency is to assess the riskiness of a debt issue to the people holding the debt. And that's what they're commenting on.
    2 Jun 2011, 07:12 PM Reply Like
  • noob
    , contributor
    Comments (364) | Send Message
     
    Interesting statement about prosperity being a measure of children and not income. I'm curious where you found such a relationship. It's a different measure and it has my curiosity.
    3 Jun 2011, 06:49 AM Reply Like
  • Old Trader
    , contributor
    Comments (5725) | Send Message
     
    I must say I'm getting a tad tired of all of the "weasel wording" being used by central bankers, the world over....like in the EU, regarding Greece....what was the phrase? "Re-profiling" the debt?

     

    Time to call a spade a spade!!!
    2 Jun 2011, 06:51 PM Reply Like
  • Joe Morgan
    , contributor
    Comments (1500) | Send Message
     
    More fear mongering by the credit agencies....this is to help Obama make a budget without cuts in spending, they want to raise the debt ceiling without cuts....

     

    Common sense tells me that raising the debt ceiling without long-term cuts is irresponsible and would hamper future output potential of the Economy, as the debt service grows faster than GDP...

     

    2 Jun 2011, 06:51 PM Reply Like
  • dividend_growth
    , contributor
    Comments (2883) | Send Message
     
    Moody said that just raising debt limit without considering future reductions means negative outlook, and that no deal means downgrade.
    2 Jun 2011, 06:56 PM Reply Like
  • Joe Morgan
    , contributor
    Comments (1500) | Send Message
     
    Well, I try not to follow Moody advice, they were telling me that all the mezzanine were AAA....

     

    Of course all their ratings were based on home prices going up forever, and I can't comprehend how the economists and quants of Moody forgot that prices revert to their mean....

     

    Maybe has to do with the stupid Copula function....too much faith in a formula...
    2 Jun 2011, 09:00 PM Reply Like
  • Bear Bait
    , contributor
    Comments (665) | Send Message
     
    Common sense tells me that raising the debt ceiling without long-term cuts and reinstatement of the Bush tax cuts is irresponsible.........
    2 Jun 2011, 06:59 PM Reply Like
  • Windsun33
    , contributor
    Comments (4271) | Send Message
     
    Common sense... Washington... HAHAHAHA!
    2 Jun 2011, 08:45 PM Reply Like
  • Joe Morgan
    , contributor
    Comments (1500) | Send Message
     
    Depends, when you say the Bush tax cuts, are you referring to the complete package or just the wealthy tax breaks?

     

    Because, the part of the wealthy cuts, is just a piss on the ocean, it is a mild effect on the deficit.
    2 Jun 2011, 07:04 PM Reply Like
  • Bear Bait
    , contributor
    Comments (665) | Send Message
     
    I don't have a problem with reinstating all of Bush's tax cuts. I do have a problem with the Republicans (I have claimed that party for 40 years) refusing to discuss all possible solutions to this debt crisis. If the tax cuts have such a great economic benefits, why after six years of these economic benefits did the economy crash? Tax cuts didn't work for Reagan and they aren't working now! I believe there is an old saying "to error is human, to make the same mistake twice is stupidity".
    2 Jun 2011, 07:30 PM Reply Like
  • Joe Morgan
    , contributor
    Comments (1500) | Send Message
     
    These benefits could be skewed, but lowering capital gain taxes and reducing dividend rates are good decisions as they foster long term capital investments in our country.

     

    The recession mess was caused by over leverage and misallocation of capital in the housing industry. The tax cuts didn't contribute to it, and income receipts were growing at a strong level in the period of 2003-2007.
    2 Jun 2011, 07:45 PM Reply Like
  • Windsun33
    , contributor
    Comments (4271) | Send Message
     
    I have to agree. To take tax increases of some kind off the table, even if it just eliminating most of the special tax breads, won't fly for long.

     

    Even the most dingbat of economists agree we are going to need both.
    2 Jun 2011, 08:47 PM Reply Like
  • Tack
    , contributor
    Comments (13035) | Send Message
     
    Anyone who believes increasing tax rates reduces deficits is delusional, to put it bluntly. It routinely --virtually always-- fails for two reasons:

     

    1) There's not a politician in the world, who anticipating new revenues, doesn't find a way to justify new programs and increased spending, often not only spending the expected receipts, but leveraging up the anticipated incoming revenues with new borrowings.

     

    2) Even worse, the expected revenue increases never arrive. Despite evidence showing, time and again, that tax cuts stimulate economies and lead to higher revenue collections, big-government lovers always return to the idea that higher marginal rates must lead to more, not less, tax revenue. It never works out that way, so, aligned with #1, above, the deficits spiral higher.

     

    P.S. Those who talk about expanded deficits during the Reagan era, as proof that tax cuts don't work, obviously never looked at the data. Tax revenues expanded dramatically under Reagan; it's just that spendthrift politicians spent even more at a faster rate. It's ALWAYS bout spending, not inadequate tax revenues. For politicians, it's never enough.
    2 Jun 2011, 09:20 PM Reply Like
  • Windsun33
    , contributor
    Comments (4271) | Send Message
     
    Your points are only somewhat true. Well, #1 is 100% true. On #2, there usually ARE some revenue increases, but they are never as much as projected.

     

    But my main point of contention is that a lot depends on exactly which taxes are cut or raised - cutting corporate tax rates seems to help more than cutting personal tax rates, but even that is hard to tell beause so much of the personal taxes are local and sales taxes. It is really hard to draw any conclusions from a single factor, such as raising income tax rates, as so many other factors often play into it. And, for example, if you look at the tax rates in Hong Kong vs Germany, you will really get confused.
    2 Jun 2011, 10:04 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    Bear

     

    Economics is the social science of equilibriums and trying to isolate variables in a world of flux. There is no clean lab for experimentation. I have taken away over the years that anything taken to an extreme can have negative results. Cutting taxes in a high tax environment makes a big different. It is a huge stimulant. Cutting taxes in a low tax environment not so much.

     

    Increasing taxes in a struggling economy and with pretty high taxes and cost of living increases will be damaging and that is us today.
    3 Jun 2011, 12:29 AM Reply Like
  • noob
    , contributor
    Comments (364) | Send Message
     
    Historically the US Government has never been able to exceed a net 30% tax for any sustainable period of time. Maybe for one or two years, but never as a rule.
    Raising taxes will only make people move their money to somewhere else - internationally or into lower earnings so they fall out of that tax bracket.
    3 Jun 2011, 07:12 AM Reply Like
  • Windsun33
    , contributor
    Comments (4271) | Send Message
     
    Been doing a little historical research on other countries, and it seems to come down to that a total 30-35% overall tax rate is the "fly away point", where money and/or companies start moving elsewhere. Considering that the US has the 2nd highest corporate tax rate in the world @35%, only behind Japan, it would appear that we have reached or gone over the limit.

     

    But it also appears that regulations and restrictions can have as much effect as taxes - in many cases it is the compliance costs of just doing all the paperwork, which could be called a hidden tax.

     

    Of all those millions of pages filed by corporations each year, I wonder how many are actually looked at?
    3 Jun 2011, 07:43 AM Reply Like
  • Poor Texan
    , contributor
    Comments (3529) | Send Message
     
    From my experience filing them, very few.
    3 Jun 2011, 01:47 PM Reply Like
  • Jake Huneycutt
    , contributor
    Comments (1353) | Send Message
     
    Since this is a completely unprecedented event, it seems like no one really knows how to react to it. However, I believe there's a logical case to be made that 'not raising the debt ceiling' is not equivalent to default.

     

    It merely means that the US Treasury must prioritize which payments to make. In all likelihood, they will prioritize debt payments, instead of government services and entitlement programs. While this is not a "good" event regardless, it's also not a default. It'll just be like when California had to start issuing IOUs a few years ago.

     

    So, my take is that Moody's misunderstands the impact of this event.
    2 Jun 2011, 07:36 PM Reply Like
  • Topcat
    , contributor
    Comments (416) | Send Message
     
    If they lower our rating, all debt servicing, and all other loans (for businesses, mortgages etc) ALL will go up and kill the economy which is slowly but surely recovering but not that far from the edge again. It will be a disaster. HR should start with Obama's plan (cuts $4 TRILLION in 10 years) so the plan for cuts is in place and begins, then raise the ceiling. But Boner will NEVER allow it.
    2 Jun 2011, 08:10 PM Reply Like
  • Wyatt Junker
    , contributor
    Comments (4503) | Send Message
     
    A cheerleader without pom poms is really just a glorified mime.
    3 Jun 2011, 03:02 AM Reply Like
  • Poor Texan
    , contributor
    Comments (3529) | Send Message
     
    From the article.

     

    "However, a rating in the Aa range would be the most likely outcome. Any loss to bondholders would likely be minimal or non-existent, as Moody's anticipates that a default would be cured quickly."

     

    So a downgrade isn't a default? What's the big deal then: the rating is just an expression of the reality of our fiscal imprudence.
    2 Jun 2011, 08:12 PM Reply Like
  • mike mohr
    , contributor
    Comments (451) | Send Message
     
    Goldman + Moody's + Warren trying to push the government to more borrowing.
    I for one as a tax payer do not care if U.S. defaults. Cut the spending and balance the budget before borrowing more.
    2 Jun 2011, 08:25 PM Reply Like
  • cstauffer
    , contributor
    Comments (430) | Send Message
     
    If Moody's actually stated that the U.S. will default that is highly irresponsible. I am of the firm belief that not only will the U.S. not default this year or any year in the future, the U.S. Constitution under the 14th amendment makes it unconstitutional for the Federal government to not honor its debt obligations. So, not only can the U.S. monetize its debt virtually indefinitely, but politicians cannot even constitutionally "choose" to default.
    2 Jun 2011, 08:29 PM Reply Like
  • Wyatt Junker
    , contributor
    Comments (4503) | Send Message
     
    You forgot. They don't refer to the Constitution any longer.

     

    They're above it now.
    3 Jun 2011, 03:04 AM Reply Like
  • usafirst
    , contributor
    Comments (7) | Send Message
     
    There are probably many real answers to our country's financial problems. Consider or just discuss this one please. Taxing some derivative transactions(some types only perhaps credit default swaps etc--you pick) and future ones only. Go where the money is flowing and its not to main street. Current derivatives amount to over 1000 trillion dollars worldwide. Existing transactions could not be taxed or all the large financial institutions would be revealed to be insolvent. I believe we do need large financial institutions in today's fast world but not the way they have been doing business. Taxing (say 2/10ths of 1% of certain transactions or you pick the %). The banks would soon have to slowly De-leverage their off the book bad transactions--better long term for them and for us. How the USA could tax without the rest of the world cooperation I do not know. The money received from the tax to pay off our national debt--nothing else--no shifting to ongoing obligations etc. just some of my thoughts to discuss, brain storm, pick apart etc. whatever works to get the USA stable again.
    2 Jun 2011, 09:41 PM Reply Like
  • Jason Rines (iThinkBig)
    , contributor
    Comments (2231) | Send Message
     
    Simple: Just do not renew the Fed's 100 year charter in 2013 and give up the delusions of empire and vassal states to tax. The funds wind up in tax havens outside of power centers in any event. That horse left the barn long ago. Taxing a systemic private money business model is whistling past the graveyard. The Federal Reserve compromised their independence and they have destroyed their own franchise. Confidence will not recover now while they remain at the helm.

     

    China/Russo alliance and the EU can now be considered direct competition at this point.

     

    Encouraging competition and restucturing American monetary system and calculating TRUE debts to bondholders and sufficient haircuts should come on American people's terms in 2013.

     

    If as a bonholder you were not sophisticated enough to bail after having the majority of holdings made whole on the taxpayers dime you're likely to be burned one way or the other by a sovereign be it America or the other two empires.

     

    Bring the troops home to guard our borders while we become largely energy independent, restart manufacturing and let the EU and Russo/China alliance duke it out for King of the Hill.

     

    Monetary union without political union is an absolute failure. Always was and in our lifetimes, always will be. For bankers its either exit gracefully or face charges of sedition and treason, they just don't know this yet so are out busy raping maids pretending to be gods. Maybe they have a special temple to Dionysis.

     

    Too strong a plan for you USA First? Then be prepared for the United States to become the next Mexico where wealthy individuals live in gated communities with heavily armed guards to prevent kidnapping of family members but where clever criminal networks find a way...
    6 Jun 2011, 01:07 PM Reply Like
  • MarketGuy
    , contributor
    Comments (3983) | Send Message
     
    The dam is breached and the best "solutions" our govt have (in between all the political bickering and self adsorbed "film at 11" posturing) equate to garden hose sump pumps.

     

    It's too late, you can't "undo" critical mass reactions. Especially ones still being fed fuel.
    2 Jun 2011, 10:56 PM Reply Like
  • cynic2011
    , contributor
    Comments (652) | Send Message
     
    A technical default occurs when a borrower fails to comply with a non-payment obligation,such as a positive or negative covenant,but is current on its debt service obligations.

     

    So it is possible that the US can be in technical default,but without the ability to issue additional debt while running a deficit the technical default would become an actual default very quickly.
    2 Jun 2011, 10:59 PM Reply Like
  • Tack
    , contributor
    Comments (13035) | Send Message
     
    cynic:

     

    When you issue debt in the same currency you have the unbridled right to print, you can never have an actual or technical default imposed upon you. You can print your way out of any obligation, at risk of exchange rates, of course, but never at risk of defaults.

     

    Covenants can accelerate repayment obligations, but, again, never cause a default for any country that can print the currency in which the debt is due.
    2 Jun 2011, 11:15 PM Reply Like
  • IgnisFatuus
    , contributor
    Comments (2115) | Send Message
     
    Just who owns Moody's??? Follow the money...it isn't that difficult. These are the same people who saw absolutely nothing wrong with Freddie, Fannie, Lehman, et al until after the SHTF.
    2 Jun 2011, 11:23 PM Reply Like
  • cbc
    , contributor
    Comments (411) | Send Message
     
    I guess do not understand. Is the situation not like this? I have credit of say 100k and have a problem paying it . My creditor "moodys" says " if you do not get more credit (say 100k more)", that you will have equal or more trouble paying, "we will downgrade your credit rating".
    Now i know and understand that my example is micro vs macro but how is expanding my credit make me more able to pay?And if I pay my interest payment how do i default?
    I know my bank would do some serious due diligence to see if I could pay and value my income etc. But they also would not loan me more money if I had trouble paying my current obligations. It is crazy in my mind and this whole story is a complete fairytale BS job. But maybe my old fashioned common sense is just old fashioned.
    Just don't get it.
    2 Jun 2011, 11:48 PM Reply Like
  • Tack
    , contributor
    Comments (13035) | Send Message
     
    cbc:

     

    Unlike your personal case, the Government can print money, but when they do and place it in circulation, it arrives as "debt," so even though they have theoretically unlimited ability to print money, they need to avoid having imposed some arbitrary limit on the amount of debt they can create. Absent that self-imposed limit, they can print and create debt indefinitely.
    3 Jun 2011, 12:09 AM Reply Like
  • cbc
    , contributor
    Comments (411) | Send Message
     
    Thanks Tack, but I still do not see how given Moody's view, my, "personal case" is any different. No matter whether the government can create debt indefinitely the creditors require "definite" payments of at least the interest. Thanks for your efforts but I still don't get it. Forgive my ignorance.
    3 Jun 2011, 12:26 AM Reply Like
  • Tack
    , contributor
    Comments (13035) | Send Message
     
    cbc:

     

    Think of it this way:

     

    Suppose you have no arbitrary, self-imposed limit on your own debt ceiling, and you, like the Government, could print any amount of currency you wished, in order to honor your obligations. In such case, you would never run out of dollars to pay interest due, principal due, anything due, as you would have unlimited currency-creation powers.

     

    That's how the Government differs from you and me.
    3 Jun 2011, 12:33 AM Reply Like
  • Wyatt Junker
    , contributor
    Comments (4503) | Send Message
     
    I suppose we could compare it to the worst textbook case example of the shippers. We'll use DRYS. To ascribe them as 'shareholder unfriendly' here is an understatement.

     

    They run secondaries all the time at the expense of existing shareholders, then blow off even more the following quarter, with tertiaries, quaternaries, etc. etc.

     

    As they do this, the share counts(currency) increase in number, diluting the worth of existing shares.

     

    In essence, DRYS can 'print' more shares(ie, debt) to either buy more ships or, more likely, hand off more options to insiders who in turn cash out and live on a beach in the Bahamas, robbing existing shareholders. Its a publicly traded pyramid scheme. Then need you continually coming in downline as their new supply of recruits feeds directly into their bank account. There's no revenue here. Its a shell.

     

    This is not a forever open system, however. There are always, ALWAYS, winners and losers. In the case of the government(or DRYS) when they print(or run secondaries) dollar holders(and shareholders) are squeezed.

     

    Just wanted to point this out since your comment gives the impression that there's no harm or potential problems as a result of the fairy tale experiment of fiat that we are all forced to be slaves in as complimentary lifetime members.

     

    Government may 'differ' from you and I, but that means very little in this closed experiment. Government will default... on us, if not the foreign debt holder.

     

    Our government has been defaulting for over 100 years now. That's what inflation(printing) is. Creating debt is a very expensive habit, even when one does it miraculously as if out of thin air by a central bank. TNSTAAFL.

     

    What most of us are doing here on SA is understanding this and all of us, trying to escape it by running faster than the govt's (usually unreported) inflation number. We've all been trying not to be a dollar bagholder ever since Nixon ramped up the velocity of devaluation. Sure, govt. can print and effortlessly create debt, but it causes pain elsewhere in the system. All things in the end are brought to bear. There is never any way out of this except true organic growth brought about by the embrace of freedom over tyranny. Sadly, we are closer to being believers in top down control now than bottoms up freedom to choose your own way, the only true and real way wealth is ever 'created'.
    3 Jun 2011, 03:18 AM Reply Like
  • Tack
    , contributor
    Comments (13035) | Send Message
     
    "Sadly, we are closer to being believers in top down control now than bottoms up freedom to choose your own way, the only true and real way wealth is ever 'created'. "

     

    This is what 40 years of Government-controlled school systems offering the socialist manifesto has wrought.
    3 Jun 2011, 10:02 AM Reply Like
  • cbc
    , contributor
    Comments (411) | Send Message
     
    Tack ,
    I am not an idiot. And I am not sure you understand my incomprehension of Moody's statement. I understand the government can print all the money it wants, but that does not at all explain why not raising the debt ceiling will cause a default. Or why any government who is having trouble paying its debts should print more money. It clearly does not solve anything. Heavy inflation is an economy killer unless wages keep up. Wages never keep up.

     

    Hell, with your reasoning why can't we just print all the money we need to pay off all our debt and wipe the slate clean. To quote you "and you, like the Government, could print any amount of currency you wished, in order to honor your obligations. In such case, you would never run out of dollars to pay interest due, principal due, anything due, as you would have unlimited currency-creation powers."

     

    So from your point of view why even talk about a debt ceiling. Print the money pay off all debt and then congress can get on to other matters. If only it was as simple in life as it it for you in your mind.
    3 Jun 2011, 12:03 PM Reply Like
  • Tack
    , contributor
    Comments (13035) | Send Message
     
    cbc:

     

    I just answered your question; I didn't advocate policy.

     

    But, to elucidate further, yes, if the debt ceiling isn't raised and/or tax revenues increased, then, the Government would run out of debt space to produce new money, whether one advocates that course or not. That's the technical answer.

     

    As for policy, the Government needs to adopt a middle course of tightening its own purse strings while stimulating private-sector growth. This it can accomplish by reducing its own wasteful spending and by allowing rates to rise, so banks start lending in the private sector, rather than parking money in Treasuries. That loop must be broken.

     

    The path we must not adopt is to introduce some Draconian austerity program, accompanied by hard-money policies. That is precisely what occurred in the early 1930's and led almost immediately to a huge depression. We will duplicate that feat if we now adopt the same policies. I'm a rather conservative-minded political person, but even I realize that some of the stuff uttered by Republicans, like Ron Paul, would be ruinous. We need growth, not austerity.

     

    If you think that the average middle-class person is damaged by current levels of inflation, it's nothing in comparison to where they'd be if totally unemployed, as many more surely would be under the wrong policies. I don't think almost anybody of today's critics has any idea how severe and austere things were back in the '30's. Today, we complain if our iPhone has poor reception.
    3 Jun 2011, 12:21 PM Reply Like
  • cbc
    , contributor
    Comments (411) | Send Message
     
    If you have the time, explain this part further. "if the debt ceiling isn't raised and/or tax revenues increased, then, the Government would run out of debt space to produce new money,"

     

    SO the government needs more potential debt in order to print more money?
    3 Jun 2011, 12:43 PM Reply Like
  • Tack
    , contributor
    Comments (13035) | Send Message
     
    cbc:

     

    Yes, effectively, all new money supply arrives as debt, either in the private sector or recycled back into Treasuries, via the banks. So, if the Government needs any more money to pay its obligations, beyond its actual receipts, it must "borrow," i.e., create money. Inability to do so could trigger a default.
    3 Jun 2011, 12:52 PM Reply Like
  • cbc
    , contributor
    Comments (411) | Send Message
     
    Thanks tack. Heres the part that I did not get. Effectively our government has ALREADY raised the debt ceiling by accruing obligations that we cannot pay for. I see now that a ceiling is not really a ceiling it is just kind of idea of ceiling that really means NOTHING. Now I understand revenues come up short and it is hard to judge how much money will come in down the road. But 2 Trillion is the number they are throwing around right? Seems quite a bit off the mark, to say the least. And so as the Fed has been accruing more debt for our government, knowing what the debt ceiling is, they are not accountable or liable for these obligations beyond the debt ceiling? No wonder I am having such a hard time wrapping my head around this. Seems like insanity to me. Thanks for your time and I am going to do some more of my own research on this seemingly ridiculous situation.
    3 Jun 2011, 03:47 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    An ethically bankrupt company downgrades an ethically bankrupt government. You cannot make this stuff up.

     

    Lord help us all.
    3 Jun 2011, 12:30 AM Reply Like
  • Herr Hansa
    , contributor
    Comments (3080) | Send Message
     
    Japan's borrowing cost went up when they were dropped to Aa rating. Whether or not anyone likes or agrees with rating agencies, future debt issuance is still affected by the rating decrease. The Japanese Yen is high because retail customers at their discount window are allowed a high amount of leverage.

     

    In one way I see a positive outcome in that the US Dollar will diminish as the dominant currency. If they Federal Reserve does decide to devalue the currency to cover debt, then what happens to the price of oil, the US's largest important. Will some oil transactions start to happen in Euros.

     

    As in investor I would bet on a stronger Euro and weaker US Dollar, because with the political impasse, that seems the only outcome. Politicians are more interested in pointing finger of blame than in fixing anything. They might each think that will help their election chances (job security for the political class), but maybe that is all the want to accomplish.
    3 Jun 2011, 12:58 AM Reply Like
  • Wyatt Junker
    , contributor
    Comments (4503) | Send Message
     
    We need interest rates to rise. Its perverse what is happening now. We desperately need interest rates to rise either by spooking the markets into making foreign debt holders believe that America is a riskier bet or by Ben pulling his foot off the accelerator. Its the only way we can stop government spending(meddling), by interest rates rising.

     

    Rising rates are like a red light in a school zone. STOP! We need to stop causing food riots in the middle east. We need to stop causing oil prices to spike and kill our consumers here. We need to stop impoverishing the elderly who need income.

     

    Let the markets work and adjust. Force government to shut down by raising their borrowing costs. The longer this goes on, the greater our debt will become and then we'll never be able to raise rates(Japan) ever again because it would simply crush the system, and then there would be a default. Not inflationary default. A formal default with the media headline with it, which would mark a new shift from the West to the East. Its already happening.

     

    The West has grown soft. We've been lulled to sleep with the gift of a reserve currency, and like spoiled children lulled into believing that the entitlements of our grandfathers are ours also. We've paid into those programs ourselves, sure, but we all understand now that is a corrupt tax at this point, even though the politicians continue lying that these are 'great programs'. We all know the score.

     

    The lying has got to stop. FDR was a disgrace to this nation's Constitution. LBJ was a monster. Each generation it has grown worse, incrementally. We are now in the end game stage. Having no real leadership, no one to come forward except the internet and say the obvious that all these programs need to just stop, end, quit, fin, etc.

     

    But we don't have that. We have clowns and game show hosts. We have smiling mascots and 12 step deniers. We have derelicts and ego magicians, coke addicts and sex addicts within the growing lard of agencies and bureaucracies of union warhoused cubicle farm people who have napped their entire lives in the alphabet cults, passed out in johns, gaming the pensions at the expense of the working stiffs and bleeding out this country from within.

     

    This is where we are at now, today. We are at the edge. And it is spinning out of control. There is no one who speaks the truth anymore and the ones that do aren't given the time of day. Rand Paul apparently, according to the media isn't worth consideration nor is anyone else who challenges the status quo. We are in the advanced degree entropy stage, no one even caring enough to say enough, stop, no more.
    3 Jun 2011, 03:42 AM Reply Like
  • Windsun33
    , contributor
    Comments (4271) | Send Message
     
    Yeah, but aside from all that, things are fine. After all, didn't Florida, the Oxy Expess state, just pass random drug tests for welfare recipients? I bet that will boost the economy and create jobs. (for lawyers).

     

    All that kind of stuff is a sideshow to distract us into not noticing that nothing good is happening on the economy, and they don't have a clue at either the state or federal level about what to do next.
    3 Jun 2011, 06:00 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    It seems to me that what has happened is that our standard of living dropped quite dramatically the past 5 years and so we pulled out the credit card and artificially kept living high off the hog. The government also poured on the debt and promises to various groups without really looking if the underlying economy could support it. Add on the Obama economic F team which could not create a job if they tried and is more interested in scape goating and overall we really took a substantial hit to our economic engine.

     

    The next step is that spending keeps going until we are forced to stop. This will be a cliff event versus the government winding down their spending in an orderly fashion which they cannot seem to do. Until we are in crisis nothing gets done. So the pain and realization of how much trouble we are in will come suddenly versus drawn out over time. Not sure which one is better but certainly a cliff event will lead to a lot of fighting and finger pointing and those of us who know how we got here can only stand back and look at the children fighting in the playground and claiming they were right and it was not their fault.
    4 Jun 2011, 12:34 AM Reply Like
  • Herr Hansa
    , contributor
    Comments (3080) | Send Message
     
    Absolutely Tomas. Take a look at that other short article that shows effective wages dropping over the last ten years. Might be good for a few companies profits over that time period, but with the US being a consumer driven economy this is a bad indicator for growth. If the real estate, MBS driven, bubbly had not happened, then maybe things would look even worse, though the sudden drop-off after Lehman might have been absent.

     

    California tried to mandate health insurance about a decade ago. They put in exemptions for businesses with less than 50 employees, businesses with large temporary work-forces, and temporary agencies. The biggest sector of job growth has been in temporary and less than full-time workers, over the last decade.

     

    Compare that to the recent changes to promote health plans across the US, and that Federal Law also left exemptions for temporary and part-time workers. It should be no surprise that segment gained in employment figures last year.

     

    Take a look at current employment numbers, which had seen some gain from McDonald's hiring 64k new workers. The saddest thing I saw in that was that over a million people tried to get one of those McDonald's jobs.
    4 Jun 2011, 03:36 PM Reply Like
  • cstauffer
    , contributor
    Comments (430) | Send Message
     
    Interesting view point, however I suggest that you should relook at how many private sector jobs have been created in the last 18 months or so. I am sure that you will say that this job creation, although comparable to that of the 2003-04 time frame is insufficient. However, consider that this job creation has come in spite of virtually no rebound in residential and commercial construction this time around. This is the first post recessionary period in this country over the last 100 years where construction did not lead the way. Also, you should also look at the private sector leverage statistics over the last three years. You will see that the private sector has actually deleveraged fairly significantly contrary to your statements.

     

    Your version of events have many mis-truths or half truths which show your anti-Obama biases.
    5 Jun 2011, 08:13 PM Reply Like
  • Herr Hansa
    , contributor
    Comments (3080) | Send Message
     
    I'm not American, so I don't care about the politics of this. Your Legislative Branch has more influence over events than what comes out of the Executive Branch. Put your investment decisions in the hands of politicians, anywhere in the world, and the results are unlikely to work in your favor. The Bernanke has more influence over the economy than any of them.

     

    Good that the gains are not in construction, especially since that was not a bubble. Where do you find the information about leverage statistics? Please elaborate on how you feel that effects wages.

     

    Granted that employment has improved over the last 18 months, but are you satisfied with the level of unemployment. How do you explain the large increase in temporary workforce reported by your own Federal labor reporting agencies?
    6 Jun 2011, 01:39 AM Reply Like
  • Tack
    , contributor
    Comments (13035) | Send Message
     
    Herr:

     

    The large increase in temporary employment is the private sector's reaction to Washington's imposition of yet more expensive benefit mandates on companies, related to "full-time" employees. Companies simply sidestep this meddling by hiring temporary and contract workers. If Washington seeks to close these "loopholes," then, corporations will simply move the hiring overseas.

     

    As usual, Washington's actions are self defeating, as regards to benefiting employees or employment.
    6 Jun 2011, 02:26 AM Reply Like
  • cstauffer
    , contributor
    Comments (430) | Send Message
     
    Tack:

     

    I am a business owner and I work with a substantial number of business owners. Your logic is far to simplistic and like many on these boards, driven by your political view point. Temporary workers are always the first to be hired coming out an economic downturn when economic growth is uncertain. Even in our business, we hired a temporary part-time person last year because of some uncertainties regarding the staffing need in that department. We recently offered to take that person to full-time because of the lifting of some of those uncertainties. By the way, we provide generously subsidized health insurance, 401K retirement savings and life insurance for all of our full-time employees. These perks are not what holds us back from hiring full-time employees; business and staffing need uncertainty are what holds us back from hiring full-time employees.
    6 Jun 2011, 08:56 AM Reply Like
  • Tack
    , contributor
    Comments (13035) | Send Message
     
    cs:

     

    I too was an executive responsible for many hundreds of employees and fully understand how it works. That said, in the present case we are seeing a more extended delay in hiring and a disproportional gap in the rate of hiring between temporrary and full-time employees. Now, one can attribute this to "uncertainty," and I think that's a valid claim, but there's no question, as well, that the Government's ladling on of ever more costs on full-time employment has to factor in. This has been confirmed by other small-business owners on SA, who have specifically said they are avoiding full-time hiring for precisely these extra cost reasons.
    6 Jun 2011, 10:58 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    Business uncertainty means the economy is not strong enough which is the demand side so there is no reason to hire people full time which is the supply side. I think cs highlighted the points that are being made about our current leadership team.

     

    I don't care if it is Obama or green Martians. They are not getting it done.
    6 Jun 2011, 11:51 AM Reply Like
  • Tack
    , contributor
    Comments (13035) | Send Message
     
    TVP:

     

    The more the Government tries to direct the economy, the less risk taking and hiring will be done by private employers. The Government is insidious, in that it wants full control, yet wants the burdens placed on private employers.

     

    And, QE crushes hiring because banks have no incentive to make low-interest loans to the private sector when they can get risk-free returns from Government. Until this loop is broken, there will be no expansion in private-sector lending.
    6 Jun 2011, 11:57 AM Reply Like
  • Wyatt Junker
    , contributor
    Comments (4503) | Send Message
     
    Depends what kind of business you're in. Extrapolating one situation to all is also very simplistic. How diverse is this 'substantial number of business owners'?

     

    We also offer generous healthcare contributions towards premiums to our workers, a 401K match and life insurance for full-timers. What we've been doing this entire last year and a half is reducing the amount of full-time and hiring more part time as a percentage of the staff. We will continue to do this.

     

    The new worker will be a part timer. It will be rarer and rarer for us to put someone on as full time now.
    6 Jun 2011, 12:00 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    Tack

     

    Agree on your first point.

     

    But help me understand something. Banks never had an incentive to make low margin loans but low interest loans can be made if the margin is big enough.

     

    If they loan money to the UST by buying TBills they make less than 1% interest. If they loan money to a business or consumer they can charge many multiples of what they would make on UST's. The UST's are risk free if you don't factor in inflation but the return is nothing.

     

    What I have seen is banks become much more circumspect about the risk of lending as consumer, government and judicial attitudes have changed towards paying them back.

     

    Keep in mind also that there are a lot less lenders in our economy now and especially the aggressive lenders. They were killed in 2008.
    6 Jun 2011, 01:57 PM Reply Like
  • Jason Rines (iThinkBig)
    , contributor
    Comments (2231) | Send Message
     
    I own a Small Business and vouch for your conclusion.

     

    1) NH UI went from 2% to 8%. I terminated a friendship of almost thirty years because he had decided last year to continue his UI "vacation" as he put it. He is only back to work because the UI ran out.

     

    2) Healthcare. I hire full-time workers with a 90 day orientation period or let's be frank and call it a trial period. Family coverage (what most adult and skilled professionals need as a primary bennie) increased from $1,400 per month to $1,600 per month. That plan is Anthem, Plan A (best). Think about the total annual for a second. $19,200.

     

    I will launch another survey at the end of the month and publish the results like I did on the consumer deleveraging question the Fed posed to the general public on their blog. Then we will know in which priority of increased cost verse lowered demand is hurting the job market. Low demand as the only reason politicians and MSN spout is only part of the equation why labor is remaining soft.

     

    3) Government sponsored extortion. Empires over expand. When they do, the rich escape taxation and the poor have nothing to give. The Empire receeds and to fund itself to prevent extinction, taxes the middle class. Government "protections" such as sexual harrassment laws encourage struggling employees with declining purchasing power to sue their employers. And boy do they!

     

    Of course the State is really only looking for a hefty fine and could care less about the individual. In other States where there are more minorities it is race discrimination. In NH, I was charged with "gender" discrimination. The State didn't even both to check the UI payroll roster and see I had an EXACT 50/50 ratio. Thanks for the downward mobility! Loved wasting thirty hours of my time answering the three feminazi's calling themselves a 'investigative tribunal'. No I didn't settle, I prefer being the sticky guts in the machines wheel then capitulating like a little boy hiding behind attorney also preying off the extortion racket.

     

    I had an IRS agent in my office last month claiming I was "missing forms". My bookeeper faxed them to him an hour later. Good thing I have to spend $60,000 a year on accounting between a bookeeper and CPA on this particular $1 M of gross revenue right?

     

    Now scale this sum and percentages to my other ventures. Getting the point folks? I could get buy with Quickbooks alone without 'professionals' if it were not for this uncompetitive U.S. landscape.

     

    4) Financial fraud. $600 in fraudelent billings last month in May alone my monthly personal bills are $5k a month. $3,000 are for financial services representing 20% monthly fraud. Yay! 28 days, hidden fees, late charges on currently up to date bills (even factoring in 28 day). Gee. Why am I avoiding looking for credit like the plague? Of course even if I wanted it I couldn't get it since RBS kited eight checks from my business account which bounced damaging my 720 credit. That was two years ago, I don't bother trying to be a good FICO doobee but hedge against amorality instead. (There Chairman Bernanke and Fed Executives). Your destroying your customer base so they can look at tall black obsolisks in Chigaco, D.C. and NYC from cardboard boxes.

     

    5) Inside leadership all on board looting the system instead of attemping reform and setting themselves up in China, their nice new baby. Of course they are unaware of the bait-and-switch in their stupid hubris. But the inside CFR's love their new baby pet. *uck you Kissinger and devil worshiping tri-lats. The 4D model kills triangulation and the only real reason I have an once of respect left for Goldman, because they bought into Facebook and understand, triangulation is dead or soon will be.

     

    As a Small Business owner, what's not to love out of all this?!?!

     

    If real financial reform does not occur in 2013. Goodbye and good riddance to staying here in America. I had planned on staying no matter what but my family is well educated and no longer feels safe here with jackbooted thugs kicking down doors. I'll have to admit to myself that I will be far too tempted to open fire on them and I abhor violence. All those taxes for security funding international investments didn't leave much for my own country. WHY 911 HAPPENED IN THE FIRST PLACE.

     

    Thanks for the opportunity to rant, ahhhh that feels better.
    8 Jun 2011, 04:06 PM Reply Like
  • Wyatt Junker
    , contributor
    Comments (4503) | Send Message
     
    Excellent stuff James. I commiserate on all points. I have 120 employees. Enuff said.
    8 Jun 2011, 04:37 PM Reply Like
  • Windsun33
    , contributor
    Comments (4271) | Send Message
     
    What you need to do is move to a more business friendly state.
    8 Jun 2011, 07:42 PM Reply Like
  • cstauffer
    , contributor
    Comments (430) | Send Message
     
    Wyatt,

     

    Every business is different and each situation unique to some extent, so generalizations cannot be made and I think that was my point in an earlier comment when someone generalized that the lack of full time hiring was the fault of a particular administration's policies. I pointed out that in my experience if a business has wherewithal and the demand justification to hire that they will do so regardless whether or not the cost of doing so has increased because the cost of hiring tends to rise and fall in a comparable fashion among all businesses at the same time. The question is do you want to hire the best candidate possible? If you do you will likely have to hire full-time or work out a generous independent constractor arrangement.

     

    However Wyatt I will have to admit that for the unskilled worker it will likely be harder and harder to get full-time work with benefits. To some extent that makes it even more imparative that we have something akin to "Obamacare" so that the number of uninsured do not continue to swell, thus further driving up the cost of healthcare.
    6 Jun 2011, 02:01 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|