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nobullsupplements
06-08-2011, 08:28 PM
U.S. Loses AAA Credit Rating as S&P Slams Debt, Politics - Bloomberg (http://www.bloomberg.com/news/2011-08-06/u-s-credit-rating-cut-by-s-p-for-first-time-on-deficit-reduction-accord.html)

Standard & Poor’s downgraded the U.S.’s AAA credit rating for the first time, slamming the nation’s political process and criticizing lawmakers for failing to cut spending enough to reduce record budget deficits.
S&P lowered the U.S. one level to AA+ while keeping the outlook at “negative” as it becomes less confident Congress will end Bush-era tax cuts or tackle entitlements. The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based firm said yesterday.
Lawmakers agreed on Aug. 2 to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred. Even with the specter of a downgrade, demand for Treasuries surged as investors saw few alternatives amid concern global growth is slowing and Europe’s sovereign debt crisis is spreading.
“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in a statement late yesterday after markets closed.
U.S. Response
The U.S. immediately lashed out at S&P, with a Treasury Department spokesman saying the firm’s analysis contains a $2 trillion error. The spokesman, who asked not to be identified by name, didn’t elaborate, saying the mistake speaks for itself.
Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings on Aug. 2, the day President Barack Obama signed a bill that ended the debt-ceiling impasse that pushed the Treasury to the edge of default. Moody’s and Fitch also said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.
“This move should not be much of a surprise to markets, though the timing is at a point where market sentiment is fragile after the drop in stocks this week,” said Ajay Rajadhyaksha, a managing director at Barclays Capital in New York. “What really matters is whether the markets are willing to ‘downgrade’ the U.S. bond market. As this week’s move showed, U.S. Treasuries remain the flight-to-quality asset of choice.”
S&P’s action may hurt the U.S. economy over time by increasing the cost of mortgages, auto loans and other types of lending tied to the interest rates paid on Treasuries. JPMorgan Chase & Co. estimated that a downgrade would raise the nation’s borrowing costs by $100 billion a year. The U.S. spent $414 billion on interest expense in fiscal 2010, or 2.7 percent of gross domestic product, according to Treasury Department data.
‘Fiscal House’
“It’s a reflection of the fact that we haven’t done enough to get our fiscal house in the order,” Anthony Valeri, market strategist in San Diego at LPL Financial, which oversees $340 billion, said in an interview before the cut. “Sovereign credit quality is going to remain under pressure for years to come.”
The agreement between Republicans and Democrats raised the nation’s debt ceiling until 2013 and threatens automatic spending cuts to enforce the $2.4 trillion in spending reductions over the next 10 years.
Even with the accord, S&P said the U.S.’s debt may rise to 74 percent of gross domestic product by year-end, to 79 percent in 2015 and 85 percent by 2021.
S&P also changed its assumption that the 2001 and 2003 tax cuts enacted under President George W. Bush would expire by the end of 2012 “because the majority of Republicans in Congress continue to resist any measure that would raise revenues.”
American Policymaking
“More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating,” S&P said.
S&P put the U.S. government on notice on April 18 that it risks losing the AAA rating it has had since 1941 unless lawmakers agreed on a plan by 2013 to reduce budget deficits and the national debt. It indicated last month that anything less than $4 trillion in cuts would jeopardize the rating.
“There was still a very narrow cross section of common ground between the parties and we don’t think that this agreement really changes that equation,” David Beers, a managing director of sovereign credit ratings at S&P said in a Bloomberg Television interview.
Capital Weightings
The treatment of Treasuries and other securities backed by the U.S. in terms of risk-based capital weightings for banks, savings associations, credit unions and bank and savings and loan companies won’t change, the Federal Reserve and bank regulators said in a statement following the downgrade.
Obama has said a rating cut may hurt the broader economy by increasing consumer borrowing costs tied to Treasury rates. An increase in Treasury yields of 50 basis points would reduce U.S. economic growth by about 0.4 percentage points, JPMorgan said in a report, citing Fed research and data.
“The minute you start downgrading away from AAA, you take small steps toward credit risk and that is something any country would like to avoid,” Mohamed El-Erian, chief executive and co- chief investment officer at Pacific Investment Management Co., said in a Bloomberg Television interview before the announcement.
Ten-year Treasury yields fell to as low as 2.33 percent in New York yesterday, the least since October. Yields for the nine sovereign borrowers that have lost their AAA ratings since 1998 rose an average of two basis points in the following week, according to JPMorgan.
Treasury Yields
Treasury yields average about 0.70 percentage point less than the rest of the world’s sovereign debt markets, Bank of America Merrill Lynch indexes show. The difference has expanded from 0.15 percentage point in January.
Investors from China to the U.K. are lending money to the U.S. government for a decade at the lowest rates of the year. For many of them, there are few alternatives outside the U.S., no matter what its credit rating.
“Yields are low in the face of a downgrade because there is nowhere else for people to go if they don’t buy Treasuries because they want to be in safe dollar assets,” Carl Lantz, head of interest-rate strategy at Credit Suisse Group AG, one of 20 primary dealers that trade directly with the Fed, said before the announcement.
Bond Dealers
The committee of bond dealers and investors that advises the U.S. Treasury said the dollar’s status as the world’s reserve currency “appears to be slipping” in quarterly feedback presented to the government on Aug. 3.
The U.S. currency’s portion of global currency reserves dropped to 60.7 percent in the period ended March 31, from a peak of 72.7 percent in 2001, data from the International Monetary Fund in Washington show.
“The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices’,” page 35 of the presentation made by one member of the Treasury Borrowing Advisory Committee, which includes representatives from firms ranging from Goldman Sachs Group Inc. to Pimco. “The fact that there are not currently viable alternatives to the U.S. dollar is a hollow victory and perhaps portends a deteriorating fate.”
Members of the TBAC, as the committee is known, which met Aug. 2 in Washington, also discussed the implications of a downgrade of the U.S. sovereign credit rating. “None of the members thought that a downgrade was imminent,” according to minutes of the meeting released by the Treasury.
Remaining AAAs
S&P gives 18 sovereign entities its top ranking, including Australia, Hong Kong and the Isle of Man, according to a July report. The U.K. which is estimated to have debt to GDP this year of 80 percent, 6 percentage points higher than the U.S., also has the top credit grade. In contrast with the U.S., its net public debt is forecast to decline either before or by 2015, S&P in the statement yesterday.
A U.S. credit-rating cut would likely raise the nation’s borrowing costs by increasing Treasury yields by 60 basis points to 70 basis points over the “medium term,” JPMorgan’s Terry Belton said on a July 26 conference call hosted by the Securities Industry and Financial Markets Association.
“That impact on Treasury rates is significant,” Belton, global head of fixed-income strategy at JPMorgan, said during the call. “That $100 billion a year is money being used for higher interest rates and that’s money being taken away from other goods and services.”

tat maytals
08-08-2011, 11:14 AM
Means nothing.

The other companies have kept it at AAA.

The difference is next to nothing and these ratings have been a shame for years anyway.

IRON TANKS
08-08-2011, 02:17 PM
Interesting read. We knew the world was f*cked, but.. yeah.



In a normal world, each country has its own independent currency, such as the Australian dollar or Swiss franc. The economies of these countries vary naturally in strength relative to one another for all sorts of reasons. Government policies, central bank interest rates, natural disasters, discovery of new resources, etc. When countries vary in economic strength, their currencies change in relative valuation to reflect this.

As a country enters an economic downturn, a central bank will typically lower interest rates in an attempt to increase lending and get the economy going again. A weakening economy causes international investors to lose interest in investing due to poor growth prospects, causing them to sell off their holdings of that nations currency, in favour of converting to the currency of a more interesting nation. In addition, declining interest rates cause foreign exchange speculators (one of the biggest markets in the world) to lose interest in holding that currency (as it earns less in interest), causing them to sell it in favour of buying a higher yielding currency.

These forces combine to send the currency of a weakening economy lower. A lower currency then makes it cheaper for international investors to purchase the national assets of that country, or invest in speculative ventures, and also makes it cheaper for multinational companies to set up operations in that country as unit costs and labour costs are cheaper. Hence the system is self-buffering. A weakening currency attracts the kind of activity that leads to economic growth and the system corrects itself.

Now in the Eurozone, every country that was stupid enough to sign onto the Euro locked itself into a pegged exchange rate. Being all on the euro, the relative exchange rates between these nations cannot change but the relative strengths of their economies CAN. If you understand what I've written above, you'll understand why I say the Euro is, and always was a completely stupid idea. The only outcome of it is economic collapse for Europe unless European nations agree to give up their power to a central European government (as the States did to the Federal Government of the USA). This is never going to happen, so collapse is the only option open.

Economies, like Greece, that start to stink, cannot devalue and hence cannot attract the kind of activity that leads to economic recovery. Greece is trapped in an impossible situation and must either default, or be bailed out by the countries that did well in the Eurozone (Germany and France). This also, is unlikely to happen.

Now the reason all of this is such a massive problem and threatens to damage the entire world economy is that the world's largest banks and hedge funds have been gambling on the likelihood of Europe blowing up like this. When a speculator buys a government bond, he/she does so to earn the income paid on that bond, but also takes a certain risk in the process, that the government may default and not pay back the total amount owed. To protect against this happening, the speculator can buy insurance on the bond, called a "credit default swap". In exchange for a regular premium payment, the seller of the CDS insures the buyer against a bond default, promising to cover all losses should the bond go bad.

Unfortunately, unlike regular insurance, there is no concept of "insurable interest". In other words,anybody can buy an insurance contract, even if they don't own the bond. What this means, is that there can be more than one claim for insurance on the same bond, and that a moral hazard is created to deliberately make the bond go bad in order to collect insurance, or to deceive the seller of insurance that the bond is lower risk than it actually is. This was the mechanism that created the collapse of 2008: insurance policies created on mortgage backed securities that were nothing more than gold-painted dogshit.

Defaulting mortgages triggered the collapse in 2008 as insurance policies had to be paid out and it was discovered that the paying companies couldn't actually afford to do so. Now, in 2011, we have a much bigger problem as the entities looking down the barrel of default aren't people not paying their home loans, but are entire governments not paying their debts.

Multinational banks have sold insurance policies against entire nations (Greece, Italy, even the USA). If those nations default, then the losses cause by CDS claims will be large, vastly in excess of the ability of these banks to actually pay. Making the matter worse, is that the leverage of European banks is more than double that of US banks leading up to the MBS disaster. In other words, European banks were so confident that European nations could not default, that they made much larger bets on the matter and stand to lose much more money. If defaults occur, these banks will require bailout, to an extent that exceeds the entire GDP of Europe.

Translated to common language: Europe is ****ed.

So how likely is it that a default will occur? Answer, 100% likely, in fact it already has, just that it wasn't formally declared as such. You see, in order for a CDS to trigger, there has to be a formal declaration of a "credit event" by the ISDA. As it turns out, the members of the ISDA are the very same banks that stand to lose big in the event of a sovereign default. So, surprise surprise, when Greece recently defaulted, it wasn't declared as a formal default.

<a href="http://www.ifre.com/isda-determinati...647984.article" (http://www.ifre.com/isda-determinati...647984.article%22) onmousedown='UntrustedLink.bootstrap($(this), "bAQCXMVXF", event, bagof({}));' rel="nofollow" target="_blank">http://www.ifre.com/isda-determinati...647984.article</a>

Playing with words like this achieves nothing. If the buyers of CDS discover, to their shock, that the ISDA is conflicted, then they become aware that their insurance isn't actually insurance at all, that they have been scammed, causing them to panic and exit their now highly risky position. Such activity only exacerbates the problem, guaranteeing an even more severe default. For example, as confidence is lost in the Greek economy, the cost of Greece acquiring fresh funding goes up (ie, the interest on bonds goes up, price down). If traders have insurance, they have less risk and will happily tolerate higher prices (lower yields), but if they realize the insurance is hollow, then they will panic, and sell bonds, thus causing Greek bond prices to fall lower and yields to rise even higher, thereby pushing Greece into even more trouble. The default becomes more likely.

Given that Greece (and others) do not have a floating exchange rate, it is physically impossible for them to develop their economy and grow their way out of debt. The euro thus ensures complete European collapse.

For a long time now, Portugal, Ireland and Greece have been on the radar (recently Cyprus), as sure-fire default candidates. Germany and France have been asked to bail out these nations via the EFSF:

<a href="http://en.wikipedia.org/wiki/Europea...ility_Facility" (http://en.wikipedia.org/wiki/Europea...ility_Facility%22) onmousedown='UntrustedLink.bootstrap($(this), "FAQDMJ57m", event, bagof({}));' rel="nofollow" target="_blank">http://en.wikipedia.org/wiki/Europea...ility_Facility</a>

Theoretically, this is possible as the economies in question are small enough, but it does not solve the core problem of a static exchange rate and only kicks the can down the road, ensuring that these nations will need a bailout at a later date.

Then there is the issue of Spain, an economy that is larger than Portugal, Ireland, Greece and Cyprus combined. When it, inevitably, heads to default, Germany and France will have trouble covering it. Now, very rapidly, the final member of the PIIGS, Italy has entered default stress territory with the price of its bonds falling to a level where it cannot raise enough fresh funding to operate its government. To illustrate how much of a problem this is, the Itallian government's debt is the third highest in the world, behind Japan and the USA. The default of Italy simply cannot be covered by Germany and France.

It gets worse, much worse. Who could possibly imagine that Italy would crater? OK, well, anyone who understood the stupidity of the Euro could, but we were very much a minority. Meanwhile, multinational financial institutions thought that it was impossible, so they happily sold insurance against the notion. Easy money right? If Italy can't possibly default, then all the people buying insurance against Italian bonds are suckers, handing over premiums like idiots. HAHA SUCKERS!....oh wait...SHIT!

So when a nation like Italy threatens to default, then the sellers of CDS on Italian debt are suddenly on the hook, being required to pay for the losses. And because, as I explained earlier, you don't have to own the bond to buy the insurance, the amount that has to be paid out in the event of a default exceeds the amount lost in the default. In other words, for every euro defaulted on by Italy, CDS sellers might have to pay more than one euro.

Again, translated to common language: the insurers are ****ed.

The media love to paint the illusion that this is just a problem with the "European basket cases", but this is nothing close to reality. The banks most on the hook for defaults by the PIIGS are banks that come from the core of the eurozone. Most notably: FRANCE.

When the defaults happen and the megabanks of France have to pay out on CDS, they will suddenly face a liability greater than they can afford. They will have to turn to the French government for a bailout, but because France is also on the Euro, it cannot print Euros to devalue its way out of it. As has been the history of the complete morons in Europe's parliaments, they may turn to austerity in order to fund the bailouts (higher taxes, lower government spending), but there's just one problem.The money required to cover payouts exceeds the entire GDP of France. In other words, even if the French government stole every single euro earned by its citizens in a year, it would still not be enough to pay for the banks' gambling losses.

Again in common language: France is ****ed.

And so is Germany, and Belgium and the Netherlands, etc. Oh and it's not just confined to Europe either, because some of the biggest sellers of CDS are international banks, they will also need to be bailed out by their respective governments, thereby effecting the USA, Switzerland, Japan, etc.

Again in common language: the whole world is ****ed.

Now just when you think things couldn't get any worse, here come some of the biggest morons in the world known as the US Republican Party, who, for the purpose of attaining more political points, refuse to increase the US Debt Ceiling, a defunct limit that only had relevance when the US was on the Gold Standard and is actually not Constitutional. The insecurity that these idiots injected into the world's markets, the concept that the world's largest issuer of international debt might default on its obligations, triggered the beginning of the selloff we see now and one of the three main ratings agencies to downgrade US debt from AAA, to AA+.

This matters and it matters a lot. I'll try to explain why.

Sitting above the banks in a country is the central bank. Sitting above all the central banks of the world is the king of banks, the BIS (Bank for International Settlements). The BIS issues the Basel Capital Accord, a document that contains policy guidelines that central banks then implement. It set the rules that the world's banks must follow.

The most important of these rules is that a bank must maintain a certain amount of "core capital" (8%). For every $100 that a bank loans out, it must possess $8 in core capital, of which at least $4 must be classed as Tier 1 capital. When a bank falls below this level, then, depending on national interpretation of the BIS rules, it becomes what is called a "zombie bank", unable to make new loans until 8% core capital is reinstated.

A bank typically raises its core capital by raising fees, increasing interest rates on loans, decreasing interest paid on deposits, selling more shares to raise cash (equity), or selling off high risk-weighted assets to raise cash.

The BIS provides a table that defines how much various types of assets contribute to core capital, a risk weighting. For example, a Greek bond has a higher risk weighting than a Swiss bond, therefore a Greek bond contributes less to core capital than a Swiss bond. The risk weighting is determined independently by credit-ratings agencies that give each asset a rating, such as AAA or BB-. The AAA rating is deemed to be 100%, in other words, if you have $1,000,000 worth of sovereign bonds rated at AAA, then they contribute $1,000,000 to your core capital.

One of the most popular components of core capital, used by banks all over the world is the US government bond, rated at AAA. Now suddenly, out of the blue, Standard and Poor's (one of the 3 main credit ratings agencies) has downgraded US debt to AA+. What this means is that, according to the BIS rules, the risk weighting of US debt has now automatically increased, meaning it contributes less to core capital and bank lending must be constrained.

For banks that were in deep shit over Europe and the existing US-based mortgage-backed disaster, this loss of core capital pushes them into zombie status. They therefore have to raise capital, and raise it quickly, if they want to continue operating. Given the sheer volume of US bonds out there this is a big problem.

Here's the translation: a lot of banks just became zombies.

To see how serious this can be, just think back to 2008. In 2008 as CDSs started to trigger and banks had to pay up, they were forced to dip into their core capital to find the cash to pay out, as a precursor to depleting core capital and going completely bankrupt. In a panic to try to reinstate core capital, banks were forced to sell non-contributing, or high risk weighted assets (such as stocks). By selling these assets, the banks were able to convert them into cash which has a zero risk weighting and contributes to core capital. Consequently, the losses on stock markets around the world were massive, reflecting the money that had to change hands as derivatives were triggered. Of course, when it all settled down and the bailouts flew around, the whole thing was a zero sum game and money soon went looking to speculate once more, leading to the stock market recovery.

Were lessons learned? Did the gambling on exotic derivatives such as CDS get regulated and curtailed?Nope, the net and gross value of outstanding derivatives is now even higher than it was in 2007. The figure we're talking about here is hard to know exactly, but is estimated to be in excess of one thousand trillion dollars.

That's around 15-20 times the value of the entire planet's GDP.

The combination of inevitable European defaults and the hit to core capital caused by a downgrade of US debt now means that banks are desperately scrambling to raise capital, leading to a stock market selloff, and we haven't even had a formal default yet. When defaults occur, the losses involved will be beyond a level that can possibly be bailed out. Either the ECB has to find a way to print Euros and just give them to the banks, in essence paying for the defaults of entire nations, or the eurozone must break up and the euro must go.

Bear in mind that even if the ECB does bail out a huge economy like Italy (which is won't), that it does nothing to solve the core problem of static exchange rates caused by the Euro.

In common language: there is no way out unless the euro dies.

Closer to home, many people might like to think that the Australian economy should be immune from this as we are tied to China. But the Chinese economy depends on Europe and the USA as these are its top two trading partners. The Chinese economy is in massive overcapacity, an economy that is now 60% construction and manufacturing to service a demand that doesn't even exist in reality (it's being driven by paper speculation). China is in for a fall back to reality, and will take Australia with it.

But even ignoring China, if you take mining out of the picture, the Australian economy is screwed. It has one of the biggest real-estate bubbles in the world, high levels of credit per person, and, mining aside, poor prospects to earn its way out of debt. Mining is, at best, considered a highly speculative bet by investors (both domestic and international), meaning that if there is any disruption to global consumption and trade, the signal is to sell Australian assets and sell the Australian dollar.

In a European collapse and a scramble for capital, Australia will get sold off. Never mind the fact that, unlike most nations, we have a highly concentrated financial sector with only four main banks (ANZ, Westpac, Commonwealth and National). These banks are heavily exposed to all the issues I've discussed so far and will punish their customers, milking them for cash and rationing credit when the shit hits the fan, hence killing off economic activity in this country.

In common language: the strength of the Australian economy is a lie

pistachio
08-08-2011, 04:39 PM
Interesting read. We knew the world was f*cked, but.. yeah.

I would rather have not read that lol.

I have quite a bit of money tied up in managed funds (shit financial advice), suffice to say this whole debacle is hurting me a lot lol.

nobullsupplements
08-08-2011, 06:19 PM
I would rather have not read that lol.

I have quite a bit of money tied up in managed funds (shit financial advice), suffice to say this whole debacle is hurting me a lot lol.

A lot of shares put into the bottom drawer for now...

dave
08-08-2011, 06:42 PM
That's it I'm moving to Africa. At least you can see the fucked up shit coming at you over there. Don't expect me to help you guys out when the worlds economy comes crashing down.

Rambodian
08-08-2011, 06:57 PM
Yeh pretty fuurked up, I'm studying economics (only a module for a business degree in accounting) and we have done a case study on the 2008-9 financial meltdown. Suffice to say, when US is going down we all will follow as we back our own money on theirs. Spun out when I found out that 1 in every 5 dollars is US currency in the whole world. Haven't learn't enough to know what this all brings to our door step though, interesting stuff when you consider China is considered our biggest buyer, and US is their biggest market. Knock-on effect can't be good there.

tat maytals
09-08-2011, 09:35 AM
China and Japan hold the largest portion of the US currency in the world.

But you'll learn more as you go on. Don't just take what your lecturer says as gospel. They teach the system they are given and provide a bias based on their personal beliefs.

I had one teach us the whole "100% unregulated market" bullshit in 07 lol

The problem is, people look at these situations like there is only two completely opposite approaches.

Unregulation got us into this mess, over-regulation made it worse. Moderate regulation from government the whole time would have avoided this.

But look at the world economy at a bigger level. Historically, the US dollar has strengthened in times like these. For some reason people go back to it.

It is not beyond recoverable at the moment.

The problem also comes down to too many people with little knowledge thinking they are mad investors who pull out of the market the second the is any speculation of bad news. Just because one shame rating system downgraded the US from "an excellent chance of paying their debts" to "a very good chance..." shouldn't have been a call for fuckwits to withdraw from the market.

The media sensationalism of the events amplifies the negative effects of it. People are sheep in a lot of ways.

Fakepolitik
10-08-2011, 11:06 AM
China and Japan hold the largest portion of the US currency in the world.

But you'll learn more as you go on. Don't just take what your lecturer says as gospel. They teach the system they are given and provide a bias based on their personal beliefs.

I had one teach us the whole "100% unregulated market" bullshit in 07 lol

The problem is, people look at these situations like there is only two completely opposite approaches.

Unregulation got us into this mess, over-regulation made it worse. Moderate regulation from government the whole time would have avoided this.

But look at the world economy at a bigger level. Historically, the US dollar has strengthened in times like these. For some reason people go back to it.

It is not beyond recoverable at the moment.

The problem also comes down to too many people with little knowledge thinking they are mad investors who pull out of the market the second the is any speculation of bad news. Just because one shame rating system downgraded the US from "an excellent chance of paying their debts" to "a very good chance..." shouldn't have been a call for fuckwits to withdraw from the market.

The media sensationalism of the events amplifies the negative effects of it. People are sheep in a lot of ways.

The problem with this argument that you're assuming that the government can reach and maintain this 'happy medium' of regulation. Attempting to regulate the finance sector to avoid crises is desirable, but in reality, it's probably unachievable. Alan Greenspan argued that trying to regulate hedge funds was pointless as their balance sheets change so rapidly, that the information would be irrelevant before the ink dried on the reports.

But, again, don't think that this was necessarily a problem of too little regulation in the first place. When the Great Depression occurred, Keynes and many others argued that this was simply a failure of the market and that was accepted as the standard explanation for about thirty years. It wasn't until the 1960s, however, that Milton Friedman proved that the Depression was a result of the Federal Reserve allowing money supply to shrink and, subsequently, push up real interest rates, which drastically slowed growth. The Federal Reserve having a mandate from the government to regulate money supply means that the Depression was a failure of governance, not the market (that's not to say that the 1929 crash wasn't a fault of the market though.)

In turn, it's entirely possible that another Milton Friedman could come along in thirty years time and completely alter our understanding of the crisis of 2008. We shouldn't be so quick to blame the market when, if you dig a little deeper, you can find fault of the government.

TheGiftToLift
10-08-2011, 02:01 PM
Hey TM, do you have any info on why the Euro was created?

tat maytals
10-08-2011, 04:43 PM
Fakepolitik - That was a really good post. But now you are assuming how the regulation should work and by the looks of it, you expect it to be purely reaction. The level of regulation and whether it's proactive or reactive are points we haven't discussed to support either of our posts. Reaction will always lag compared to market movements obviously. Also I don't want to get caught in a round-a-bout argument of whether it was the market or the regulation. It was a mix of both - which is a bit weird and hard to grasp as it kind of sounds like an oxymoron "Well the mix of unregulation, market movements and regulation is what caused it..." sounds strange, right?

I think we can both agree on your statement to what and see what we discover in the future. Hindsight is so marvelous.

TGTL - This is something I haven't talked about in a while. It's quite a draining topic which borders on conspiracy theory, so it can just get out of control.

It was basically done for trading purposes between businesses - instead of trading through different currencies and later using the euro currency unit which wasn't an actual currency, it was brought in for common terms.
Another reason was tourism, if all the countries had the same currency, it would be easier for tourists to travel around - especially considering how small some of them are.
There were some other reasons talked about - to qualify for the euro the countries had to meet a set of criteria regard deficits, debt ratios, investments etc etc. Some economists pushing for the euro claimed once you meet that criteria and obtained use of the euro, the strength of the economy would increase more as it was like joining a stronger countries economy.
It was also a step towards a unified europe - this is where the conspiracies kick in. Let me say that I believe a Unified Europe is different to a One World Government and this isn't a discussion about either - although they both have positives and negatives just as much as alternatives.

It created the second largest economy in the world, it helped and hurt different countries, but it has stood pretty strong and has proven to be useful. Don't forget most of the world outside of (and a lot inside of) Europe predicted it would be detrimental or at least only partly as successful as it turned out to be so far.

tat maytals
10-08-2011, 04:50 PM
That's a short version anyway.

If you want to discuss the negatives of the euro WITHOUT conspiracies, then a lot of debt that europe is caught up in right now can be mentioned. But this is a long conversation I don't really want to have lol (sorry).

Fakepolitik
11-08-2011, 11:08 AM
I agree. I'm certainly in no position to offer an in depth explanation, but I would say that it's a bit more complex than simply arguing that the crisis was caused by either too much or not enough regulation.

Paul Krugman wrote some really great stuff about how that wasn't so much that financial deregulation in the 1980s caused the crisis, but the fact that there had been no regulation at all on things like Collateralised Debt Obligations (CDOs) in the first place. It seems that regulators simply haven't been able to keep up with the rapid financial innovations made over the past thirty years.

This is the sort of stuff that disturbs me. In this light, I don't have much faith that the government could enact anything beyond ham-fisted restrictions on the workings of the finance sector. In this case, we would have to choose between the lesser of two evils- I highly restricted, anemic, but stable finance system or a highly flexible, innovative, but chaotic one instead.

TheGiftToLift
12-08-2011, 11:52 AM
Just read some articles on the economist website... things are looking bleak in the US and Europe...

Govt approach to slow the recession has been pretty conservative hasn't it? Prop up businesses and austerity measures...

I love this quote from Henry Ford "Cars don't buy cars". Help out consumers to get them spending and stop sitting on their cash! Confidence is the real problem here. Enough with handing crutches to banks.

TheGiftToLift
12-08-2011, 11:56 AM
Fakepolitik - That was a really good post. But now you are assuming how the regulation should work and by the looks of it, you expect it to be purely reaction. The level of regulation and whether it's proactive or reactive are points we haven't discussed to support either of our posts. Reaction will always lag compared to market movements obviously. Also I don't want to get caught in a round-a-bout argument of whether it was the market or the regulation. It was a mix of both - which is a bit weird and hard to grasp as it kind of sounds like an oxymoron "Well the mix of unregulation, market movements and regulation is what caused it..." sounds strange, right?

I think we can both agree on your statement to what and see what we discover in the future. Hindsight is so marvelous.

TGTL - This is something I haven't talked about in a while. It's quite a draining topic which borders on conspiracy theory, so it can just get out of control.

It was basically done for trading purposes between businesses - instead of trading through different currencies and later using the euro currency unit which wasn't an actual currency, it was brought in for common terms.
Another reason was tourism, if all the countries had the same currency, it would be easier for tourists to travel around - especially considering how small some of them are.
There were some other reasons talked about - to qualify for the euro the countries had to meet a set of criteria regard deficits, debt ratios, investments etc etc. Some economists pushing for the euro claimed once you meet that criteria and obtained use of the euro, the strength of the economy would increase more as it was like joining a stronger countries economy.
It was also a step towards a unified europe - this is where the conspiracies kick in. Let me say that I believe a Unified Europe is different to a One World Government and this isn't a discussion about either - although they both have positives and negatives just as much as alternatives.

It created the second largest economy in the world, it helped and hurt different countries, but it has stood pretty strong and has proven to be useful. Don't forget most of the world outside of (and a lot inside of) Europe predicted it would be detrimental or at least only partly as successful as it turned out to be so far.

You sound exactly like my friend Steve... You're not into marxism are you?

tat maytals
12-08-2011, 12:13 PM
I'm into tat maytalism mate. lol

Basically, I should be made sole ruler of the world for 20 years without question. Then we will all be peachy forever and ever.

TheGiftToLift
12-08-2011, 12:15 PM
absolute power corrupts absolutely.

tat maytals
12-08-2011, 02:15 PM
I would still like to have the opportunity to prove that wrong lol

nobullsupplements
15-08-2011, 06:28 PM
The Time had a really interesting piece on this issue, and how the debt deal merely delays the inevitable.