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More great news for our country and the President. The President's policies are working.

This is also another death blow to Trickle Down. That failed economic theory that Romney and other conservatives admire. Because our debt level is coming under control, another downgrade will be less likely. The peak debt level was during the Bush years, when conservatives just loved them some debt.

U.S. debt has shrunk to a six-year low relative to the size of the economy as homeowners, cities and companies cut borrowing, undermining rating companies’ downgrading of the nation’s credit rating.

Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.

Downgrading the U.S. is premature when the two-thirds of American debt that is private is shrinking, according to Jim Vogel, head of government agency-debt research at FTN Financial in Memphis, Tennessee.

“When one trend goes counter to the only one that they seem to be looking at, that throws up a flag,” Vogel said in a Sept. 27 interview in reference to the ratings firms. “If private debt is getting on a much firmer credit foundation, why do we have a 2013 deadline for one of the thorniest fiscal problems of an entire generation?”

Courtesy of fellow kossack Anti Warhol:
You know what this means, right? (1+ / 0-)

Cue the Debt Truthers...

What is a band without skyscrapers?

by Anti Warhol on Wed Oct 10, 2012 at 07:10:47 AM PDT

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Comment Preferences

  •  What a confusing article. It is like a grab-bag (10+ / 0-)

    in its structure and organization and there's no clear lede that supports the main point, which is that consumer debt is shrinking, the US will not be downgraded, and the economy is clearly improving.  Why can't they just say those things in the lede?

    That's one more thing to add to my long list of small problems. --my son, age 10

    by concernedamerican on Wed Oct 10, 2012 at 06:30:57 AM PDT

  •  The stimulus was necessary & worked (26+ / 0-)

    You didn't explain how and why Obama's policies were effective & Romney's plans would be a catastrophe. I can do it, but not in a comment.

    look for my eSci diary series Thursday evening.

    by FishOutofWater on Wed Oct 10, 2012 at 06:32:00 AM PDT

  •  You know what this means, right? (12+ / 0-)

    Cue the Debt Truthers...

    What is a band without skyscrapers?

    by Anti Warhol on Wed Oct 10, 2012 at 07:10:47 AM PDT

  •  Which is why the economy is stalled. (4+ / 0-)
    Recommended by:
    TheCrank, jrooth, wombat, Minerva

    It's like econ 101, folks. As savings go up, aggregate demand goes down. Could anything be more obvious? Yes, it's "marvelous." We are achieving the ridiculous goal of self-immolation! And for this dear diarist, you cheer? You completely misunderstand the nature of public debt. Here is a very basic tutorial that will demonstrate what I am telling you. . . .

    •  The more important point is (5+ / 0-)

      when money is hoarded by a few, it can not move through the economy. THAT has been our main problem for at least 20 years concentrated at the top, tied up in Swiss bank accounts, yachts and giant houses that no one lives in, keeping it out of the hands of the people who will spend it and keep an economy functioning.  It has not trickled down, it will never trickle down, and we now have proof.

      David Koch is Longshanks, and Occupy is the real Braveheart.

      by PsychoSavannah on Wed Oct 10, 2012 at 08:05:23 AM PDT

      [ Parent ]

      •  That is because the government sells bonds (1+ / 0-)
        Recommended by:

        to support interest rates which supports financial assets in favor of productive assets. Constrained spenders must expend savings and incur debt resulting in greater and greater amounts flowing to the top of the economic pyramid. It they didn't buy bonds and soak up liquidity, interest would fall to zero (or 0.25% which is what I believe the fed pays on reserves currently). You would find banks much more anxious to loan as their non-productive reserves build. Meanwhile, instead of issuing debt, which is the same as issuing money except that it pays nominal interest, issue money (non-debt federal liabilities) to purchase infrastructure. That increases aggregate demand focused at households and the productive economy and greatly reduces the leakage due to savings at the top.

    •  Gobbledygoop (2+ / 0-)
      Recommended by:
      sacrelicious, D minor

      There's nothing wrong with debt spending, as you sort of ridiculously point out in the referenced diary.  There is a point where that debt needs to be paid back when times are good so we shore up our position for the next financial crisis.  

      Cheering for the national debt being reduced is a good thing, as long as it's tempered with the understanding that if the economy starts going south again, or if it isn't picking up steam quickly enough, that we need to engage in deficit spending to inject life back into the economy.

      Most reality-based economists agree that good economic policy is to absolutely spend money even if it causes a budget deficit because it stimulates the entire economy.  What I think you're not understanding is that needlessly creating budget deficits is not necessarily a great thing.  It's fine if it's helping but it's also fine to keep a balanced budget when we're able to and a budget surplus is even better - if the economy is chugging along on it's own.

      That means that if people are going hungry, we increase spending on welfare programs, regardless of the impact on the budget deficit, then we also invest in programs to get those people working and contributing to the economy as best we can, either through government works programs or stimulating the economy in other ways so that jobs are created one way or another.

      The other point I think you're making is that it's somehow a bad thing that personal savings go up.  Sure, it has an impact on the economy, but having people increase their savings is a good thing for the people saving.  

      We can't have a healthy modern economy of 330 million people if everyone hoards their money and lives off their own gardens, milking goats and raising chickens but that doesn't make the opposite scenario of everyone spending every last dollar they have and running up their personal debt the right thing to do either.  

      Personal savings are good and the people in this country could use a bit more of it. If that means that the economy shrinks a bit because people are saving their money and buying most items with cash, then so be it.

      [Terrorists] are a dime a dozen, they are all over the world and for every one we lock up there will be three to take his place. --Digby

      by rabel on Wed Oct 10, 2012 at 08:18:58 AM PDT

      [ Parent ]

      •  gobbledygoop back to you (1+ / 0-)
        Recommended by:

        We have a sovereign, non-convertible currency issued under state monopoly. Money comes into existence by the act of government spending. This is NOT a chicken and egg proposition. The government must produce money and put it in the hands of taxpayers before taxpayers can settle their monetary obligations to the government. By spending the government receives private value in the form of tangible and intangible assets added to the commons and services provided to maintain the commons. The dollars created are not debt, they are units of account that the bearer can use to transfer value through the economy and ultimately satisfy its obligations to the state.

        Your thinking here is pre-1971 when we had commodity money. You're 41 years behind the times, but you have an enormous amount of company in that.

        What I think you're not understanding is that needlessly creating budget deficits is not necessarily a great thing.
        Krugman threw us the same straw man in a recent column.  Nobody is making that argument, and the "Deficits don't matter" meme that you and others attempt to attach to MMT is a completely false premise. This issue is one of inflation. Please tell me how you get monetary inflation without demand pull. Obviously, deficit spending to increase demand with the economy at full capacity would produce inflation, but wouldn't that be idiotic on its face? I mean, isn't it obvious you don't smoke while you're filling your gas tank?
        The other point I think you're making is that it's somehow a bad thing that personal savings go up.  Sure, it has an impact on the economy, but having people increase their savings is a good thing for the people saving.  
        You are attributing to me something I did not say, but rather what you inferred. Obviously, we are at a point in the current economic cycle where most household savings have been consumed and a new savings cycle is in order. I was only pointing out that this and diminished deficit spending from the federal government are what keeps the economy constrained.
        •  This ain't dailypaul, pal (1+ / 0-)
          Recommended by:

          The major problem is that large multinational corporations are making record profits while people starve.

          It's not about the debt or our fiat currency model - which is decades-strong.

          It's about crony capitalism from the Reagan/Bush eras and lack of investment in the country as a whole.

          Raise taxes, spend it on local infrastructure projects and our economy would soar.

          Make sure everyone's vote counts: Verified Voting

          by sacrelicious on Wed Oct 10, 2012 at 09:21:02 AM PDT

          [ Parent ]

        •  You absolutely said this (0+ / 0-)

          You said:

          "This is why the economy has stalled. As savings go up, aggregate demand goes down. Could anything be more obvious? Yes, it's "marvelous." We are achieving the ridiculous goal of self-immolation!"
          How could the 'ridiculous goal of self-immolation' not be construed as 'personal savings rising is a bad thing'.

          Whatever you meant to say, I think it does have merit. But part of the economic crisis was that people were buying houses that they shouldn't have and banks lending money that they shouldn't have. But I would rather have the economy slowed by personal savings growth among the middle than get into the same crisis as before.

          In terms of the economy and recovery, the only thing that hasn't recovered is the housing market. Once this gets going again, and it is slowly growing, the economy will be fine.

          •  Try again, that's not what I'm saying at all (0+ / 0-)

            At no point do I claim savings is the only leakage, my only point was that enhanced private sector savings at a time when high unemployment is persistent and federal spending has been curtailed is a formula for disaster. Couple to that the drain from productive to financial assets and you have a bleeding wound. Only the Fed can close that gap but both sides of aisle reject such options as part of their debt hysteria. What's left? Beats me, but what we're doing is self-immolation.

            In terms of the economy and recovery, the only thing that hasn't recovered is the housing market. Once this gets going again, and it is slowly growing, the economy will be fine.
            Here you're joking, right? There is a thing called the labor market, and that continues to be decimated with the Sept 2012 U-6 is 14.7%.
    •  Still a massive housing hangover we've ignored (1+ / 0-)
      Recommended by:

      See here, for example.

      Toto, I've a feeling we're not in Kansas anymore

      by Minerva on Wed Oct 10, 2012 at 08:31:22 AM PDT

      [ Parent ]

    •  Don't mix up public debt and private.... (3+ / 0-)
      Recommended by:
      Old Surgeon, organicus, FogCityJohn

      They're different and they impact the economy very differently.

      The average person isn't hoarding savings, they are de-leveraging they're private debt.  So yes, aggregate demand is down cuz people can't afford to both pay their debts and buy the newest gadgets, cloths, even food.

      As for public debt:  econ 101 usually gets this all wrong cuz most intro books still talk about monetary systems as though we're still on the gold standard and Bretton Woods still holds.  Whether this is an innocent oversight or intentional propaganda is an interesting question.

      Be that as it may, by accounting identity, public debt is every dollar in the private sector being saved (ie, not taxed away).  Or, public liabities are private assets.  A dollar bill is an IOU.  What does the Government owe me for each dollar bill I own?  A like dollar bill.  That's it.  It doesn't owe me a dollar's worth of gold, wheat, or oil. And since all it owes me is a like dollar bill, and it ownes the dollar bill making machine, it can always pay it's debts, no matter how large.

      Of course most money things are no longer paper bills, but merely marks on a computer screen.  So it's more accurate to say that the US government can always mark up any account it wants to and it can do so with as many marks it wants to.  It can never run out of marks, just as a bowling alley never runs out of points.

      So, the US can never go broke.  Yes, it can make the political decision not to pay it's debts, but that a political choice.  It's not a monetary constraint, cuz a monetary sovereign of a fiat currency with a floating exchange rate is never monetarily constrained.

      So a public debt for the US government is in no way like a household debt, or like the debts of California, or like that of Greece.  You and I, California and Greece are currency USERS (we don't have a money making machine).  The US is a currency CREATOR, it has a  money making machine and can push that button as much or as little as it likes, regardless, by the way, whether it borrows or taxes.

      You would need no outside source of income if you had a money making machine.  (and of course you also couldn't go broke).

      So anyway, public debt......  Not what most people think it is because they don't understand the implications of fiat currency.

    •  Living Within Your Means Is Bad? (0+ / 0-)

      I should go 14% on a new Chinese TV even though my old one is fine?  Go 5 years long on a DVD in the car so my kids can amuse themselves on road trips?  We're already being punished for saving our money, 2 year CDs at 1% last time I looked.  If that ain't a sound spanking for saving money BEFORE I use it, then I must be missing something.

      The housing boom has been the most successful trickle up wealth stripping invention in the history of finance, and now when the people wake up and see and feel the pain of that fucking, it's time to punish them more?  Median family income stays flat over the course of decades while the cost of a roof over ones head has no end in sight is somehow sustainable?  Then the slightest re-adjustment of home prices to remotely resemble reality is met with hair ripping frothing at the mouth disdain?  Making that $1000 a month plus mortgage is going to hurt as much in 10 years as it does today so whoopee!  Let's go on a shopping trip and fill up the cart with as much Chinese shit as our credit card will allow, we're Americans god damn it!

  •  Good news, thanks. (1+ / 0-)
    Recommended by:
    D minor

    "Let us never forget that doing the impossible is the history of this nation....It's how we are as Americans...It's how this country was built"- Michelle Obama

    by blueoregon on Wed Oct 10, 2012 at 07:23:49 AM PDT

  •  This is total debt in the economy (4+ / 0-)
    Recommended by:
    milkbone, Odysseus, ferg, rabel

    This is all about the competitive market for bonds. The bond rating is based on likelihood of repayment; it's absurd the US Government ever dropped below the highest rating. But it's hard to take this article as evidence per se of any particular economic program being effective, since reducing private borrowing actually slows economic activity.

    The real problem is the mountains of cash corporations and financial entities are sitting on, and unfortunately fiscal tightening by the US Treasury would only exacerbate the lack of borrowing.

    Consumer debt may be bad at one level but total debt has a happy zone of not too much and not too little required to keep economic activity juiced. It's all predicated on return on investment and hence ability to repay.

    Some people are intolerant, and I CAN'T STAND people like that. -- Tom Lehrer

    by TheCrank on Wed Oct 10, 2012 at 07:25:38 AM PDT

  •  A major reason for the decline in personal debt (5+ / 0-)
    Recommended by:
    Odysseus, ferg, rabel, ybruti, MGross

    has been the write downs of debt caused by home forclosures, short sales and personal bankruptcies not that people are so flush with cash that they are paying down debt.

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Wed Oct 10, 2012 at 07:26:10 AM PDT

    •  That's good though (0+ / 0-)

      Default and bankruptcies are what is supposed to happen in an overextended economy. It sucks for the people and institutions involved, but it allows the economy to get back to a sustainable footing.

      (-5.50,-6.67): Left Libertarian
      Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

      by Sparhawk on Wed Oct 10, 2012 at 08:43:28 AM PDT

      [ Parent ]

      •  I made my comment as many people assume (1+ / 0-)
        Recommended by:

        that lower debt levels must mean that people are paying down debt - which also means the money from the paid down debt was invested in other assets.  

        When debt levels decline due to debt defaults being written down - money was destroyed.  

        The economy is far stronger when debt declines from debt being paid off, not from defaults being written down.

        The most important way to protect the environment is not to have more than one child.

        by nextstep on Wed Oct 10, 2012 at 08:53:42 AM PDT

        [ Parent ]

      •  Supposed to happen? According to whom? And (0+ / 0-)

        according to what historical time frame?

        It's a convention, nothing more, nothing less.  There's no natural law, no moral code, no nothing that says or determines that this is SUPPOSED to either happen, or not.

        Debt forgiveness is, historically speaking, a time-honored social convention.

        •  Debt forgiveness and bankruptcy (1+ / 0-)
          Recommended by:

          Are essentially the same thing.

          There is no way for a modern industrial economy to survive with enforced 'debt forgiveness'.

          You can start with your 401k if you want (since it is predicated on debt ).

          (-5.50,-6.67): Left Libertarian
          Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

          by Sparhawk on Wed Oct 10, 2012 at 11:05:00 AM PDT

          [ Parent ]

          •  "I forgive your debt, but you will be punished"... (0+ / 0-)

            isn't really forgiveness, and bankruptcy has some punishment attached.

            Also, I know you like making predictive statements as though all reasonable people already have the proof, but I also know you're smart enough to realize that this is baloney.

            So, your statement about no way a modern economy can survive with enforced debt forgiveness is, I know you know, one of those statements.

            There's no proof.  And where there has been, in effect, large debt forgiveness (I don't know how you mean the word "enforced" in this context) within modern economies, there's evidence that it's gone quite well, ie, Argentina, post WWII Germany.  Of course this was public debt (primarily, though not exclusively).

            You can add the US as well, at least in regards to the big banks (and some other businesses as well).  

            What we need, though is private debt forgiveness.  And where's the proof that a modern economy would collapse if this were done?

            And, finally, are you also predicting that the debt forgiveness of the banks, in and of itself, has caused the collapse of modern economies, we just don't know it yet?

  •  Scratching my head a bit. (2+ / 0-)
    Recommended by:
    Odysseus, soros

    So we're in debt 3.3 years as opposed to 3.6 years?  I suppose that's good, maybe we can hit only 3 years GDP in debt by the end of his second term.

  •  At the cost of? (1+ / 0-)
    Recommended by:

    Laid off teachers, police, firefighters, judges.  600K jobs in the government sector gone.

    •  Gotta live within our means (0+ / 0-)

      Every economic activity is either "makes money" or "costs money".

      "Makes money" activity is taking something worth $1 and adding $1 of labor to it and selling it for $3. Everything else is "costs money".

      All "costs money" activities are paid for by "makes money" activities. This is true for localities, states, and nations.

      (-5.50,-6.67): Left Libertarian
      Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

      by Sparhawk on Wed Oct 10, 2012 at 08:47:55 AM PDT

      [ Parent ]

  •  In spite of the roadblock the R's are and will be (1+ / 0-)
    Recommended by:

    "roadblock" is a figure of speech.  They're more of a carbuncle or a pustule.

    It's treasonous how one party will throw the country's economy into the wastebasket, just so they can strut and win. Because they've shown repeatedly that their economic ideology doesn't work.

    I think that Republicanism is revealing itself as a personality disorder, not so much an ideology." -- Naomi Klein

    by AllanTBG on Wed Oct 10, 2012 at 08:05:57 AM PDT

  •  Think Obama will mention this Tuesday? (0+ / 0-)

    Maybe after today's 'I got this' he might ... We can only hope.

  •  Course part of the reason debt went down (1+ / 0-)
    Recommended by:

    is because banks are refusing to lend to the people and small businesses who need loans.  Also lots of people went bankrupt and couldn't get credit if they hocked their firstborn at a pawnshop.  Course in many cases it wasn't their fault - their house ARM loan reset 5 or 10 points higher and the banks refused to work with them to refinance because the collapse put them underwater.

    Atheism is a religion like Abstinence is a sexual position. - Bill Maher, 2/3/2012

    by sleipner on Wed Oct 10, 2012 at 09:08:47 AM PDT

  •  Why is this good for the President? (0+ / 0-)

    Republicans will seize that private individuals did what they needed to do to reign in their debt while Government spending at the federal level has exploded.

    I would hide this article.

    The care of human life and happiness, and not their destruction, is the first and only legitimate object of good government. - Thomas Jefferson

    by ctexrep on Wed Oct 10, 2012 at 09:33:13 AM PDT

  •  This is a terrible article. (0+ / 0-)

    Not the diarist's fault, but it's ridiculously confusing.

    What the article is saying is the total US's economy's debt load is down.  Not the US government's.  The US economy as a whole doesn't have a "debt rating" to downgrade, only the US government does.

    They've essentially spliced two unrelated topics together.

    (As a side note, downgrading US debt is ridiculous.  Apparently this brave new world is just going to be devoid of AAA debt...)

  •  Isn't it good for there to be more private debt? (0+ / 0-)

    I'm no economist but isn't Private Debt and Credit how the Economic system works and shrinking indicates bad economic growth?

  •  If Romney wins (0+ / 0-)

    he and supply side economics will get credit for the economic recovery.  I hope Obama understands that.

    "When I was an alien, cultures weren't opinions" ~ Kurt Cobain, Territorial Pissings

    by Subterranean on Wed Oct 10, 2012 at 11:24:05 AM PDT

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