US Closer to ‘Junk Bond’ Status Than Triple-A: Bove

[michaelvail]

http://stratrisks.com/geostrat/542

The US credit rating would be even worse than its recent downgrade from Standard & Poor’s if the nation was judged as a private company, banking analyst Dick Bove told CNBC Tuesday.

Speaking amid the hotly contested debate over whether the US should have lost its coveted triple-A rating in favor of the new Double-A plus, Bove said the US balance sheet and the burdensome national debt tell a clear story.

“You’ve got a company which is losing about $1.4 trillion this year, probably will lose somewhere around a trillion dollars over the next couple of years. It owes $14.4 trillion (and) over the next five years that will get up to $20 trillion,” the Rochdale Securities analyst said.

[rurallib]

1. Looks like a good argument to raise some revenue to me

[spedtr90]

2. That's what a business would do!

[Taitertots]

3. The nation isn't a private corporation. He is talking out his ass

The US can tax and/or print money. What private company can do that?

[bemildred]

4. +1. nt

[Yo_Mama]

5. That's not an answer, because our interest rates will go sky high

We CAN devalue the dollar, but if we go much further the result will be the destruction of the US economy. Devaluation means that the people who sell us everything from oil to food to chemicals to clothing will be charging us much higher prices. Absent a plan to insource all that, devaluing the dollar too much will produce a US contraction as interest rates go way up, our financing costs on Debt Held by the Public skyrocket and the average consumer suddenly finds his or her paycheck worth much less year by year. In short, it will be similar to the result of the Fed's QE2, which has put us into a recession.

If a country can balance its primary budget (that is, revenues less expenditures equal aside from interest) then the country can devalue its currency. After it does it will not be able to borrow without paying very high rates, though. But our budget planning is that we will keep borrowing money, so we can't devalue much further.

[Taitertots]

6. An answer to what? We should remain AAA because we should never have to worry about default

We should never have to worry about default because we can both print money and collect taxes. I greatly favor progressive taxation.

The "answer" to our economic problems is simple: no more wars, tax the rich, and spend money domestically. Too bad our government has decided to cause more economic problems instead of following the only rational course of action.

In response to your post:
There is plenty of space to devalue the US currency without reaching problematic levels.
"In short, it will be similar to the result of the Fed's QE2, which has put us into a recession."
Would you care to explain the mechanism by which you think QE2 "put us into a recession"?

[Yo_Mama]

7. Devaluation = Default

If you significantly devalue, you have defaulted and the interest rates you are charged for new borrowing or rolling over old borrowings will shoot way up.

The real answer is much higher tax rates, and that's the only real answer.

QE2 put us into recession because it suppressed real incomes, restrained the real flow of money through the economy by suppressing real consumer spending, and produced a very, very bad GDP trend. This graph is the YoY change in nominal and real GDP:


This graph is Hospital Insurance receipts from the Monthly Treasury Statement. Because HI is charged at a flat rate on all wages and salaries, it can be used to track total wages and salaries:


The impact was particularly marked for SS recipients, who have not had a COLA in years. Most SS recipients get a small monthly check, from which over $100 is deducted for Medicare premiums. So these households are acutely sensitive to inflation for the basics, like transport, utilities, food and medicine:


I have that graph bookmarked. When I try to contact my Congress Critters I send them that graph to explain why you just can't cut SS across the board. You are way better off raising taxes on investment incomes and higher income households; cut SS payments and you effectively hamstring the American economy.

[Taitertots]

8. The government has plenty of room for monetary expansion without causing offsetting negative results

$1 printed doesn't cause $1 loss due to devaluation.

"QE2 put us into recession because it suppressed real incomes, restrained the real flow of money through the economy by suppressing real consumer spending, and produced a very, very bad GDP trend."
It didn't do any of those and you have done nothing to show that a mechanism exist for that to even be possible. Where is the process by which QE causes any change in consumer spending? It has to start with the Federal Reserve expanding it's balance sheet and purchasing mortgage backed securities and government securities.

Are you really going to make the claim the QE2 caused the collapse? That graph shows the GDP trending upward immediately following the start of quantitative easing.

Edit: Oh and I've repeatedly mentioned progressive taxation as the solution to our economic problems. In addition to ending war and increasing domestic spending, which should be easy with no war and higher taxes for the rich.

[Yo_Mama]

10. Sure, you get the initial spike and a later retraction

Because the flow of money through the Main Street economy is very restrained by losses of jobs and real incomes, money dumped into the system can only go into assets. But commodities are an asset class, and the problem is that when asset classes are structurally moved upward without an accompanying adjustment upward to the real incomes for the bulk of consumers, you will inevitably get a decline in the real volume of trade.

[upi402]

9. I'm convinced they care not about the USA or us

They pretend to adhere to free market theory. But their phony principles are a charade.

[CanonRay]

11. Note to idiot analyst: It's NOT a company

it's a nation, and a government. That is all.