Egan-Jones Down Grades U.S. Debt Options

[Douglas]

Egan-Jones took the next step toward the junk reality of U.S. debt by downgrading it by another notch to AA. I don't understand why it isn't already rated "D". Every since 1971 the U.S. has paid back debt with printed paper that is worth less in real terms than what was borrowed. If I borrow four 1960 silver dimes from you and pay you back with four 2011 scrap metal dimes, technically I've paid back the debt in full, but in reality I've defaulted on most of it. The U.S. has been doing exactly the same thing for years. Why isn't that default?

[arbman]

... because the whole world is doing the same. Printing deflates the standard of living instead of the asset values and the standard of living has to go down as we are depleting the world's resources. In a sense, if we had increasing amount of natural resources, none of these would've been an issue, we would simply mine more, and just produce and consume more or the same wasteful ways.

Instead, the inflation in central banking forces the economies to become more efficient and produce more by using less, it is an optimization, it doesn't always work though. So, the central banks try to balance their printing with the inflation and time to time, they have to allow the deflation. In fact, any time they inflate, they increase the risk of deflation since the economies may not respond by growing because it takes time for technology to improve the productivity, then they have to pause and every time they pause, it comes tumbling down...

The alternative is to let the asset values vary with the economic cycles and this usually leads to price variations that may discourage the steady growth altogether since the growth companies that require risk taking will simply go out of business. The cycles can help the bad companies be purged out of the system and the central planning (banking + govt) should not step in to rescue these, but sometimes they do anyway for the greater good. People do not like to watch their assets and constantly buy and sell them either, this also creates unnecessary stress on the system anyway...

The main issue with the central banking is that it is politicized, rather than just responding to the cycle lows in the asset prices...

[Sentient Being]

******* I hope you're wrong because what little I understood of that is not pretty.

... because the whole world is doing the same. Printing deflates the standard of living instead of the asset values and the standard of living has to go down as we are depleting the world's resources. In a sense, if we had increasing amount of natural resources, none of these would've been an issue, we would simply mine more, and just produce and consume more or the same wasteful ways.

Instead, the inflation in central banking forces the economies to become more efficient and produce more by using less, it is an optimization, it doesn't always work though. So, the central banks try to balance their printing with the inflation and time to time, they have to allow the deflation. In fact, any time they inflate, they increase the risk of deflation since the economies may not respond by growing because it takes time for technology to improve the productivity, then they have to pause and every time they pause, it comes tumbling down...

The alternative is to let the asset values vary with the economic cycles and this usually leads to price variations that may discourage the steady growth altogether since the growth companies that require risk taking will simply go out of business. The cycles can help the bad companies be purged out of the system and the central planning (banking + govt) should not step in to rescue these, but sometimes they do anyway for the greater good. People do not like to watch their assets and constantly buy and sell them either, this also creates unnecessary stress on the system anyway...

The main issue with the central banking is that it is politicized, rather than just responding to the cycle lows in the asset prices...

[arbman]

******* I hope you're wrong because what little I understood of that is not pretty.

We unleash perhaps 10x cheaper energy alternatives within a decade from Thorium reactors and all problems go away for decades... If the cost of energy goes down so much, there is enough technology to micromanage the growth in everything and clean up the economic mess...

This post has been edited by arbman: Apr 6 2012, 08:58 AM

[selecto]

There are too many rats in the box.