The Puzzling Economy

[JohnH]

James Kwak posts another good one on his blog, even if it is borrowed from someone else. He has a nose for good economics discussions, whether he writes them or someone else does.

I especially liked Bove's observation that we have "People buying treasury bills because they're worried about the treasury" & "people selling bank stocks and then putting the money in the bank for safety..."

(anyone agree that S&P shot themselves in the foot with the downgrade, and now they seem poised to double down on their initial stupidity?)

http://baselinescenario.com/2011/08/15/money-as-the-ultimate-giffen-good/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+BaselineScenario+%28The+Baseline+Scenario%29

[ChEAr$]

(anyone agree that S&P shot themselves in the foot with the downgrade, and now they seem poised to double down on their initial stupidity?)

Nope. There a wide range of ratings from the AAA+ down through the ... (what? D's?)

A lessening of one A is not as bad as the purists will make it out to be, and was well deserved in my opinion (speaking as an old credit analyst with Dun and Bradstreet). And it was not merely in response to the congressional wrangeling over raising the debit ceiling, or as laymen might understand it, obtaining one more credit card so the wife can spend more.

It's reality time, folks.

[JON]

S & P

did fine on the rating. My question is why, how are the rating companies not up to their ears in lawsuits over the junk from two years ago. They should be lucky to be in business. The only reason they exist is for getting things sold, they are paid by the seller and if they are wrong "big time" they should be losing in court!!!!

[Roberts]

did fine on the rating. My question is why, how are the rating companies not up to their ears in lawsuits over the junk from two years ago. They should be lucky to be in business. The only reason they exist is for getting things sold, they are paid by the seller and if they are wrong "big time" they should be losing in court!!!!

Who exactly would be filing these lawsuits and what would be their grounds for filing?

[Roberts]

I especially liked Bove's observation that we have "People buying treasury bills because they're worried about the treasury" & "people selling bank stocks and then putting the money in the bank for safety..."

JMO but I don't think anyone is currently worried about US Government debt, any potential problems are 15-20 (or more) years away. People are most worried about a US economic recession, a recession in Europe and a meltdown of the Euro zone.

Multiple European banks have debt/equity leverage ratios higher than Lehman (if you believe the stories being put out) and are highly invested in Italian and Greek debt that would more than wipe out all of their equity if they should default (which is inevitable over the next 5 years). With the limitations on the ECB to quickly provide an economic solution in a banking crisis if Germany and France aren't in agreement, it's a risky situation. Money is flowing out of Europe and into US Government debt because it's considered more stable than those of the European Union members. Right now the argument is whether to generate Euro Bonds. If they go that route, Italy, Greece, Portugal, Spain and anyone else will have ZERO incentive to cut their deficits (if they have any incentive now).

Just my opinion.

[Burke]

I tend to agree with all of the above. What stymies me is how the EURO continues to rate at approx $1.40+ to the USD.

[BHoffman]

Too many dollars chasing too few goods.