Obamacare cost...

[Katy Lied]

So your position is that unless the market moves there is no chance of a default? Stock bubbles must blow your mind in your world of a perfectly efficient market.

You ask interesting questions. (A) It isn't that the market causes the default, it's that the market reflects all of the available information to date. So if there is a real chance of default, the market will quickly reflect that info. (B) Stock Bubbles are caused when those taking advantage of irrational exuberance outweigh more realistic expectation. Those who ride stock bubbles don't really think that Acme Corp is worth that much; they are just betting that they can find some suckers who think that Acme Corp is worth that much-- for just a few minutes. Get in, get out, and ride less nimble market participants

[creekster]

So your position is that unless the market moves there is no chance of a default? Stock bubbles must blow your mind in your world of a perfectly efficient market.

You are confusing chance with likely probability. If the markest truly believed the United States was 14 days from defaulting on its financial obligations people would be going nuts. Is there a chance? Of course. But the people with money, theirs and others, riding on it dont see it like you. Chance? Sure. Likely? Not at this point. Not even close. And a US default would dwarf any stock bubble ever seen. So you may or may not be right about the issues leading to the current political stalemate, but your assessment of the actual risk of default, not to mention your denigration of market reaction as an indicator, is wildly off base.

[byu71]

The "market is telling us" is a phrase I have heard forever. It is a one of the most used phrases by so called experts that has no basis in reality. Can someone explain to me does the market each day "tell us", or is it at the end of each week, month or year?

I do believe the market is not a predictor of anything, but it can tell us how it feels about current events. Right now the market is telling me we have politician screwing around and we are in a waiting pattern until their tantum is over.

To have a President talk down the market is unprecedented. Of course he understand economic about as well as Cali does, so I guess we should give him, the President, a pass for being so ignorant on the subject.

[statman]

You are confusing chance with likely probability. If the markest truly believed the United States was 14 days from defaulting on its financial obligations people would be going nuts. Is there a chance? Of course. But the people with money, theirs and others, riding on it dont see it like you. Chance? Sure. Likely? Not at this point. Not even close. And a US default would dwarf any stock bubble ever seen. So you may or may not be right about the issues leading to the current political stalemate, but your assessment of the actual risk of default, not to mention your denigration of market reaction as an indicator, is wildly off base.

By law, the payment of the US Debt obligation is #1 on the payments hierarchy. Debt servicing comes first - before SS, before Medicare/Medicaid, before Federal Employees, before anything else. There is virtually zero probability that this will happen in the next decade. It would take a collapse of the US Government.

[calicoug]

You are confusing chance with likely probability. If the markest truly believed the United States was 14 days from defaulting on its financial obligations people would be going nuts. Is there a chance? Of course. But the people with money, theirs and others, riding on it dont see it like you. Chance? Sure. Likely? Not at this point. Not even close. And a US default would dwarf any stock bubble ever seen. So you may or may not be right about the issues leading to the current political stalemate, but your assessment of the actual risk of default, not to mention your denigration of market reaction as an indicator, is wildly off base.

Thanks. Then you agree with me. I said there is a chance. Not that it was likely. Just that we are moving closer and we are. You and Moliere replied there was no chance and it appears you are clarifying you agree there is a chance. If you also agree that chance escalates each day it would seem you would agree we are getting closer.

[imanihonjin]

Thanks. Then you agree with me. I said there is a chance. Not that it was likely. Just that we are moving closer and we are. You and Moliere replied there was no chance and it appears you are clarifying you agree there is a chance. If you also agree that chance escalates each day it would seem you would agree we are getting closer.

Regardless of whether we raise the debt ceiling or not, there is a "chance" that we will default on our loans....so I am not sure what your point is.

[creekster]

My original position said no such thing. I said it was hard to belive that someone would think watching the 'market' as an indicator of the perceived risk of US default on debt was silly. Of course, since youre now retreating to the Lloyd Christmas chance position, I suppose there isnt much point to this discussion.

[statman]

Regardless of whether we raise the debt ceiling or not, there is a "chance" that we will default on our loans....so I am not sure what your point is.

The first 2 minutes of the first lecture on probability - there is no such thing a probability of 0, and no such thing as a probability of 1. 0.0000000001% (one in a trillion if I got my decimal points right) is still not impossible, and likewise 99.9999999999% is not a absolute "sure thing."

But in practicality, as things stand now there is no chance that the US will default on its debt obligations in the short term. The only events that would cause that to happen would be a cataclysmic natural disaster or a civil war. Right now, debt servicing is about 7% of Federal revenues, and by law, debt service must be paid before any other outlays. In an emergency, POTUS could juggle the order of those payments, but to legitimately run a risk of default, Federal income would have to drop by about 75%.

BUT - the biggest threat of default really comes from bond rating agencies not believing our ability to restructure the federal debt and deficit in the medium and long-term. They look at a 10-year window for one big block of Treasury securities and a 30 year window for another. And of course there is another big block of notes that are 1 year and less in term. If the rating agencies don't see the potential to fix the problems on a 10-30 year horizon, they can/will downgrade the country's credit rating (again) which could make short-term borrowing much more expensive. That could lead to a Greece/Spain/Portugal/Ireland/Iceland like problem where the long-term outlook is poor which in turn makes the short term borrowing go from manageable to an absolute crisis. And unlike the Europeans with debt problems, we don't have a Germany to bail us out repeatedly.

The problem we face is that Congress ONLY thinks short-term: two years MAX We've got huge Federal programs with horrendous long-term prospects that Congress as a body simply pretends don't exist. The disconnect is that bond rating agencies DO think long-term and if that situation spirals out of control, you've suddenly got catastrophic short-term problems as well as long-term untenability.

[calicoug]

You ask interesting questions. (A) It isn't that the market causes the default, it's that the market reflects all of the available information to date. So if there is a real chance of default, the market will quickly reflect that info. (B) Stock Bubbles are caused when those taking advantage of irrational exuberance outweigh more realistic expectation. Those who ride stock bubbles don't really think that Acme Corp is worth that much; they are just betting that they can find some suckers who think that Acme Corp is worth that much-- for just a few minutes. Get in, get out, and ride less nimble market participants

Of course the market doesn't cause the default. And at some point the market would react to a rising risk of default. However, that does not mean that the lack of a significant market reaction means there is no risk. That's silly to say and it is what Moliere is arguing.

Furthermore, if your position is that bubbles are caused in part because some market participants have additional information and want to take advantage of other market participants with less information, how could that also not be applicable in keeping prices down as opposed to inflating prices? I don't think that is what is happening here. But if that's what you think is causing a bubble, it would be just as applicable here as in your example. I think it much more likely the market is simply taking a wait and see approach to this issue and that markets are actually not purely efficient.

[calicoug]

My original position said no such thing. I said it was hard to belive that someone would think watching the 'market' as an indicator of the perceived risk of US default on debt was silly. Of course, since youre now retreating to the Lloyd Christmas chance position, I suppose there isnt much point to this discussion.

This isn't a Lloyd Christmas chance position. It is a real risk. That doesn't mean more likely than not. My response was to oppose that argued that because the markets have not moved there is zero risk. That is absurd and silly. You appear to agree with that position. If you don't agree with that position, then it doesn't appear we have a disagreement.

[Uncle Ted]

The market takes into account what people think will happen. No one thinks we'll default because we won't. People are smart. They know that the biggest US bondholders are the US citizens themselves. They also know that a default would be horrible for the economy and for our reputation. That's why it won't happen and it's exactly why interest rates are not skyrocketing right now. I checked again today and interest rates are almost the same as they were yesterday although long-term rates are down a bit.

I'll say it again, we are not close.

Molie, is Ron Paul your neighbor?

[calicoug]

The first 2 minutes of the first lecture on probability - there is no such thing a probability of 0, and no such thing as a probability of 1. 0.0000000001% (one in a trillion if I got my decimal points right) is still not impossible, and likewise 99.9999999999% is not a absolute "sure thing."

But in practicality, as things stand now there is no chance that the US will default on its debt obligations in the short term. The only events that would cause that to happen would be a cataclysmic natural disaster or a civil war. Right now, debt servicing is about 7% of Federal revenues, and by law, debt service must be paid before any other outlays. In an emergency, POTUS could juggle the order of those payments, but to legitimately run a risk of default, Federal income would have to drop by about 75%.

BUT - the biggest threat of default really comes from bond rating agencies not believing our ability to restructure the federal debt and deficit in the medium and long-term. They look at a 10-year window for one big block of Treasury securities and a 30 year window for another. And of course there is another big block of notes that are 1 year and less in term. If the rating agencies don't see the potential to fix the problems on a 10-30 year horizon, they can/will downgrade the country's credit rating (again) which could make short-term borrowing much more expensive. That could lead to a Greece/Spain/Portugal/Ireland/Iceland like problem where the long-term outlook is poor which in turn makes the short term borrowing go from manageable to an absolute crisis. And unlike the Europeans with debt problems, we don't have a Germany to bail us out repeatedly.

The problem we face is that Congress ONLY thinks short-term: two years MAX We've got huge Federal programs with horrendous long-term prospects that Congress as a body simply pretends don't exist. The disconnect is that bond rating agencies DO think long-term and if that situation spirals out of control, you've suddenly got catastrophic short-term problems as well as long-term untenability.

I think senior citizens and veterans among others might disagree with your interpretation of debt.

[Katy Lied]

Furthermore, if your position is that bubbles are caused in part because some market participants have additional information and want to take advantage of other market participants with less information, how could that also not be applicable in keeping prices down as opposed to inflating prices?

Actually, that is the exact opposite of what I am saying. I believe that the market reflects all available information, so all market participants have the same information. They just interpret it differently.

During the housing bubble, speculators like Bernard didn't think the market would go up indefinitely-- they just thought it would continue to rise long enough for them to get in, flip the house and get out. Others looked at the same market and thought- nope, I'm not going to do this because there is not enough time for me to flip.

[Pelado]

I think senior citizens and veterans among others might disagree with your interpretation of debt.

Not all liabilities are debts. Just ask the CBO.

[calicoug]

Not all liabilities are debts. Just ask the CBO.

It depends on how you're using the term. That said, with the debt ceiling you won't find anybody (except here apparently) who says that the use of "debt" in "debt ceiling" only includes financings.