Keep ’em coming, we got a long drive ahead of us:
When the Mayans envisioned the world coming to an end in 2012 — at least in the Hollywood telling — they didn’t count junk bonds among the perils that would lead to worldwide disaster.
Maybe they should have, because 2012 also is the beginning of a three-year period in which more than $700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets.
With huge bills about to hit corporations and the federal government around the same time, the worry is that some companies will have trouble getting new loans, spurring defaults and a wave of bankruptcies.
The United States government alone will need to borrow nearly $2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt.
Indeed, worries about the growth of national, or sovereign, debt prompted Moody’s Investors Service to warn on Monday that the United States and other Western nations were moving “substantially” closer to losing their top-notch Aaa credit ratings.
I’m sure this is nothing that can’t be cured another round of tax cuts, deregulation, and a sustained assault on public employees by the wingnut welfare recipients at Reason.
This is what happens when you turn over the financial future of your country to people with the intelligence, integrity, and long-term planning skills of Ernie McCracken.
joes527
Couldn’t make it past the headline.
Gonna be sick now.
MattF
And if it leads to default on the Federal debt, you can always toot-tootle out to the countryside and tend your non-hybrid seed garden. Good times.
Joshua Norton
Why are you all still here? Breitbart must have destroyed you all by now. (Unless he’s sobered up and completely forgot about it.)
Joshua Norton
Actually Tanguery and Tab isn’t the most disgusting combination. Once upon a time in college we only had gin and Dr. Pepper in the frat house. I haven’t been able to drink gin ever since. Or Dr. Pepper.
Brian J
I’ve never understood how those who on the right who aren’t idiots because they actually know something–like Greg Mankiw, who would based on his advisement of Mitt Romney support more tax cuts–could rail against the deficit like they have. You don’t have to be a nut calling for a spending freeze in order to have legitimate objections about the stimulus, but how can you be so concerned about deficits while still calling for tax cuts? It makes me think those who do this are, oh, full of it.
Gus
Why would you slander Big Ern by comparing him to these people?
4tehlulz
Time to short everything.
GReynoldsCT00
Tangueray and Tab? That’s blasphemy!!
Sentient Puddle
Nice. Just when I think the economy is kinda sort of recovering, thanks for reminding me just how fucked up it is.
I need someone with an IQ of 283 or greater to answer this one: is this a function of the credit default swaps? I’m still using those as my baseline for why the economy shriveled up and died.
General Egali Tarian Stuck
This flurry of threads has given me commenting vaporlock.
Cat Lady
We’ve got one foot in the frying pan, and one foot in the pressure cooker.
Heckuva job Wall Street!
OriGuy
Fear and Loathing in Las Vegas isn’t where I can get to it. Is that a reference?
Punchy
Read somewhere that the Social Security Whatever is now going all “Pay up, bitches!” on the Feds w/r/t the gallimaufry of IOUs that’s been dumped on the SS peeps over the years.
I guess it’s just than many more money printing presses they have to purchase in the next 3 months.
OriGuy
No, I’m wrong. I googled it. But I don’t have permission to edit my last comment. *sob*
flukebucket
Tangueray and Tab? I’d prefer a gang of Tangueray and a fat ass J of some bubonic chronic that could make me choke.
Mako
@OriGuy:
Bill Murray, not Barry Livingston.
Brian J
@Punchy:
What?
gopher2b
The debtor corporations will just renegotiate if they are making their interest payments now. It’s not that big of a deal.
US losing triple AAA, while highly unlikely, is far more troubling.
kindness
The Mayan’s didn’t believe the world ended in 2012. They knew that is when our solar system passes through the galactic medium plane for the Milky Way Galaxy. 2012 is when the previous ‘long cycle’ ended and a new one begins.
Randy P
@kindness:
I’m afraid the “passing the galactic plane” is every bit as much of a falsehood as the “Mayan end of world prophecy”.
So is any claim of an “astronomical event that happens only one every 26000 years”.
Everything associated with 2012 mythology is flat-out falsehood. Except for the fact that Dec. 21 is the winter solstice.
The Mayan long count cycle is 144000 days. It has numerical significance but isn’t tied to any astronomical event so far as I know.
Alien-Radio
Dollars to donuts, Goldman, BOA etc. are massively shorting US and UK debt, which isn’t even at historical highs (see WW2) and they’ve asked the ratings agencys to help them trigger a sell off.
former_friend
Isn’t Moody one of the rating agencies that gave a pass to the junk derivative debt in the first place …
Now they are threatening to downgrade Western Civilization?
I must be reading this wrong. This isn’t from the Onion by any chance?
Brian J
@Sentient Puddle:
I don’t know if this necessarily means the economy will face more trouble. The impression I’m getting is that a country’s ability to borrow is more affected by what the markets think of its ability to handle more debt. In other words, if the buyers of government debt think the political leaders aren’t going to ever handle the economic situation responsibly, then you can see trouble. Krugman’s written a lot about this.
As far as credit default swaps, I don’t think they are really central to this problem, which seems to be the ability of corporations and companies to pay back and roll over debt. CDSs are insurance on paying back the debt. They are related, but not specifically in that they aren’t really the source of the problem.
scav
@Sentient Puddle:
well, if you’re willing to accept an abs(IQ) measurement, I’d suggest just going with the word “abuse of credit” when discussing fundamental issues. It’s sort of the little black dress with pearls of the current financial crisis as best I can tell.
Brian J
@gopher2b:
I wonder what the markets will say if health care reform passes. After all, it’s not clear exactly what will happen, but the best guesses of most of those who have studied the issue say this will begin the process of cutting long term health care costs. And as we all know, that’s the biggest issue going forward. If we begin to make progress on that, every other long term budget issue becomes simpler to deal with, but if we don’t, we’re screwed.
flukebucket
@kindness:
Always makes me think of this one:
Bang the hubcap slowly but swing the hammer hard,
the cataclysm is over, they’ve swept away the shards
shout a loud hosanna, burn a big brassiere
the cataclysm is over, at last the tragic path is cleared
Keep a steady vigil, a church in your lunchbox
the cataclysm is over, they’ve reset the horror clocks
Billy K
The problem is, the rational adults are working to fix this now, and will probably succeed more or less. So the “average TV news watching citizen” won’t believe that there was ever really a problem, and they’ll keep voting for Ernie McCracken.
The unfortunate truth is, we need some kind of doomsday scenario to actually happen before people will take this shit seriously and stop voting for the Sons and Daughters of Norquist.
former_friend
$700 billion is a certainly popular number for corporate debt the taxpayer must backstop. It’s to the penny what Bush said the financial Free Market needed last fall to save us all from imminent collapse.
At least they are giving us “warning” this time. Very reasonable of them. Good people.
PeakVT
I’m still using those as my baseline for why the economy shriveled up and died.
Basically, the economy went kaput because people borrowed too much to build too much. Credit-default swaps, option ARMs, off balance-sheet investment vehicles, and the alphabet soup of repackaged loans (ABS, MBS, CDO, CLO, etc.) were just ways to disguise borrowing so people could borrow more.
JGabriel
I’d like to recommend a new topic category for posts like this, where the topic is yet another super-expensive corporate failure coming down the pike and we get to bail out the rich once more: It Never Fucking Ends.
.
Brian J
@JGabriel:
Is it possible to make any additional bailouts contingent on following new regulations? Leave aside whether it would actually happen for a moment. Would it be a good idea?
former_friend
@Billy K: “The unfortunate truth is, we need some kind of doomsday scenario to actually happen before people will take this shit seriously.”
Did I accidentally wake up in 2006?
Alien-Radio
@former_friend:
What are the odds this is Moody’s way of blackmailing the US government into not siccing the FBI on them. We know the ratings agencys engaged in willful fraud, but not a single ratings adjuster has been indicted.
Punchy
@Brian J: I was talking about this
Brian J
@Punchy:
I figured as much, but I wanted to be sure. Dean Baker has already taken this AP writer to task for writing such a stupid article here.
Billy K
@former_friend:
Well, there ya go… disaster (somewhat) averted! We now return you to your regularly scheduled wingnut tax breaks.
Will
Keep em comin’ sweetie, I got a long drive ahead of me.
RareSanity
@former_friend:
This is exactly the first thing that popped into my mind.
Why the hell have none of these “ratings” firms been punished at all for the frauds they were a party to? Okay, huge corporations aren’t prosecuted for the same things that the mob is, I get that.
But, even outside of investigations and prosecutions, everyone acts like absolutely nothing happened. Moody’s shouldn’t even get a “snicker” when somebody quotes them? Really?
I think I’ll take one of those Tanqueray and Tabs, and I hate gin, Tanqueray especially. Who the hell thought a Juniper plant would make a good drink? Probably the ancestor of the person that thought that gin and cola was a good mix…
catclub
“I’m still using those as my baseline for why the economy shriveled up and died.”
“Basically, the economy went kaput because people borrowed too much to build too much.”
I must have too insensitive a nature, because it seems to me
that at least 90% of the economy is still running, even though
there was a BIG problem from aug 2007 to sept 2008.
Now compare with the Great Depression:
25% unemployment. Price deflation. International trade cut
by large fraction. I am no old codger who can say I was there,
but I think you are lowering the standard for economic cataclysm.
Comrade Dread
Well, with unemployment at double-digits, nothing could possibly go wrong with terminating large swathes of Federal and State workers and adding them to the job market.
And anyone who still doesn’t have a job, clearly is just enjoying staying at home and living on the extremely generous $500 a week allotment.
Also, it will reduce health care costs since most of these people wouldn’t be able to afford it any longer than thus reduce demand for health care services.
liberty60
Fact #1. The US was much deeper in debt at the end of WWII;
Fact #2. The years following the war, were marked by highly progressive tax rates, up to 90% on top earners.
Fact #3. That astounding debt was nearly paid off before the military buildup of the Reagan Administration.
Fact #4. Those were also the years most fondly remembered by conservatives as the “Golden Era” of American prosperity.
But no, on further reflection, we really need more tax cuts. Big med’cine. Fix all things.
catclub
Comrade dread @ 40
I think it is more like $500 /month in Mississippi.
bago
@kindness: Given that our galactic orbit is about 226 million years, a plane crossing on any orbit would happen at a half-interval, or every 113,000,000 years. 0-2012 represents 0.0017805% of that orbit time.
Also, proper apostrophe usage is appreciated.
Just sayin.
drkrick
@43 – Small point, but the Mayan Cycle didn’t start at our year 0 (come to think of it, that would be a more interesting coincidence than a correct call of the end of the world) but in 3114 BCE. Which is still about .004% of the orbit time.
Francis
fwiw, this is my semi-uninformed view:
1. The recession is biting big states — California especially — very hard. The housing construction monster created a lot of jobs that are now gone.
2. Lost jobs means empty space in commercial buildings, which leads to lower rents.
3. In the last boom, commercial buildings were heavily leveraged with short-term notes. The lower rent stream means that the equity has been wiped out. These buildings are going to go back to the banks, which are not the few superbanks but are instead the mid-sized regional banks.
4. Over the next two years, these banks need to get the repossessed buildings off their balance sheets and find new capital.
5. At the same time, a bunch of corporate debt needs to be rolled over.
So, it looks like there will be significant competition for private capital — buying commercial buildings from banks, adding new capital to these banks (since the bank will be taking such a haircut on the sale of the building) and refinancing corporate debt in a time of reduced corporate profits.
So, those who have money will be able to get good interest rates for it, but it may not be in the interest (hah) of the rest of us that rates start rising now.
DougW
@bago English correction is somewhat hostile in an otherwise (potentially) hostile environment. Let me guess, you teach the English language? Maybe we should try to keep comments and snark relevant to the issues at hand?
Obviously you have a bent for punctuation (and syntax???), while I hope to increase the participation of our web community. We can both bow to the realities inherent in our desires while making things easier on the newbies.
Have a great rest of the week
!
bago
@DougW: Even worse: I’m a programmer.