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Please explain how this relates to trickle-down economics. Thx.
When the cost of money is higher for the government, the cost of money is higher for others who are applying for loans. So Stan the tree-man has to pay more to get a loan to buy the new treetop can he needs to expand his business. Gina, who wants to build a new cold storage warehouse which will employ 130 people can't get a loan to build. Jack gets a loan to build a new factory, but his interest rates are higher, so his overhead is higher--meaning he gets by with fewer employees and he charges more for his product, which you and I pay more for in the store. You're welcome.
When the cost of money is higher for the government, the cost of money is higher for others who are applying for loans. So Stan the tree-man has to pay more to get a loan to buy the new treetop can he needs to expand his business. Gina, who wants to build a new cold storage warehouse which will employ 130 people can't get a loan to build. Jack gets a loan to build a new factory, but his interest rates are higher, so his overhead is higher--meaning he gets by with fewer employees and he charges more for his product, which you and I pay more for in the store. You're welcome.
You folks don't believe in "trickle-down economics", so I don't think you believe what you're saying.
You folks don't believe in "trickle-down economics", so I don't think you believe what you're saying.
You folks? You know better than that, summers73, and it's an unworthy strategy on your part to try to marginalize my arguments by pigeonholing my philosophy---which as you know, doesn't pigeonhole well.
You folks? You know better than that, summers73, and it's an unworthy strategy on your part to try to marginalize my arguments by pigeonholing my philosophy---which as you know, doesn't pigeonhole well.
LOL, yes I'm sure you're a proponent of supply side economics and the "trickle-down" effect.
Location: In a Galaxy far, far away called Germany
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We have defaulted twice in our history: 1790 and in 1933. Ironically, after the 1933 default, is when our economy started to recover. Don't know if that is just a coincidence or if getting knocked down allowed us to get back up nice and straight (as opposed to remaining a wobbly drunk that barely stands).
We have defaulted twice in our history: 1790 and in 1933. Ironically, after the 1933 default, is when our economy started to recover. Don't know if that is just a coincidence or if getting knocked down allowed us to get back up nice and straight (as opposed to remaining a wobbly drunk that barely stands).
yup, but we've never been downgraded, which was the question.
Please explain how this relates to trickle-down economics. Thx.
Here's how it works:
Interest rates in our economy are like a "stack" that are all tied to US Treasury rates. As US treasury secuities have long been the bedrock of safest investment assets in the world, other interest rates are conceptually all defined as a risk premium relative to those Treasury rates. This is a fundamental aspect of how markets define risk and return for interest-bearing securities.
So, if the ratings agencies do an unprecedented downgrade of sovereign US creditworthiness, what do you think will happen? Well, the interest rates will have to be raised as bond prices decline (always inversely related) - i.e., investors will now require a higher interest rate to compensate for higher perceived risk of repayment over time.for those securities. Rates won't skyrocket like they have in Greece, Ireland, and Italy since the US is still the best bet out there - but it is rational to expect them to go up. When the US takes the unprecedented step of acting like a potential deadbeat over bills it already owes, people will take notice - particularly when it is coupled with a fiscal house in long-term disarray.
Anyways, so what happens to all of those other interest rates I mentioned? Since they are fundamentally anchored to the Treasury rates, they will also rise - i.e., the risk premium stays the same, but the "risk-free" baseline is now higher; hence the total rate increases. Put differently, the entire "stack" of interest rates tends to move with movements in those government-created securities. This is also the key principle behind monetary policy.
So what are those "other interest rates" in the "stack"? They're your car loan. They're your school loan. They're your mortgage. They're your credit card interest rate. They're the higher prices you'll pay for goods and services because of the higher rates they pay on their corporate debt, which they'll oftentimes pass on to you if they can.
So...get ready to personally take the hit on your wallet after the downgrade hits - not to mention the compounded effect of future service funding cuts, reduced tax deductions, higher future US debt interest rates (you ultimately pay those too) and depressed short-term economic activity that will result from all this. And it wil likely happen. The damage has already been done, and it was largely self-inflicted.
So you see, it does all trickle down. And the buck stops with you. Bet your favorite politicians didn't clarify all of these consequences of their inabilty to compromise, did they?
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Location: In a Galaxy far, far away called Germany
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Quote:
Originally Posted by le roi
yup, but we've never been downgraded, which was the question.
Correct. But if defaulting is far worse (like they say), then how bad could a reduced rating be? To many people, who shouldn't have been getting loans, were getting them and that is part of the problem to begin with.
So, if the ratings agencies do an unprecedented downgrade of sovereign US creditworthiness, what do you think will happen? Well, the interest rates will have to be raised as bond prices decline (always inversely related) - i.e., investors will now require a higher interest rate to compensate for higher perceived risk of repayment over time.for those securities.
ok, here's what I want to know -- what makes you think that a decrease in our credit rating means that U.S. treasuries will be perceived as higher risk?
this seems to imply that global investors care about credit ratings, or are somehow "on the edge of their seat" waiting on a downgrade. I am extremely skeptical that this is the case.
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