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Pray tell, what is AAA?

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May 27, 2009 – Comments (7)

Pension Pulse has a post discussing inflation as a way to manage debt.

I personally think "inflation" is already there.  Prices do not match the money supply.  If you had a surge in people trying to buy goods and services with the money supply that already exists you'd see price increases.  I think that currently there is significant money supply tied up in a way that does not cause price increases.

But that is not what I intended to write about.  Here is a quote:

I doubt America will lose its AAA sovereign rating, but $99 trillion of unfunded liabilities can bring the world's biggest economy closer to that day of reckoning.

 Forgive my question here, but I did a quick calculation and I came up with $330k for every man, woman and child, which means about double that for every worker.

What the heck is triple AAA about that?

7 Comments – Post Your Own

#1) On May 27, 2009 at 9:24 AM, dwot (49.06) wrote:

Another quote from the article.

That has been the basic problem of the global economy for the past three decades. Low wages even in boom times have landed the world in its current sorry state of overcapacity masked by unsustainable demand created by a debt bubble that finally imploded in July 2007. The whole world is now producing goods and services made by low-wage workers who cannot afford to buy what they make except by taking on debt on which they eventually will default because their low income cannot service it.

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#2) On May 27, 2009 at 9:59 AM, devoish (98.36) wrote:

AAA has value because they are the letters required to get the first listing in the phone book.

AAA Cesspool Service.

AAA Waste Disposal.

AAA Lending.

Hope that helps to clarify things.

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#3) On May 27, 2009 at 10:31 AM, Rehydrogenated (32.41) wrote:

We're #1! We're #1!

I say they are going to change our rating to USA++

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#4) On May 27, 2009 at 11:07 AM, angusthermopylae (38.62) wrote:

(Puts on tinfoil hat...)

I think that currently there is significant money supply tied up in a way that does not cause price increases.

Could that have been part of "The Plan" all along?  Of the billions and billions that have been dumped into the US and world economy by TARP and TARP-like programs around the world (Treasuries, warrants, bailouts, stimuli, etc), how much of that currency has actually reached the proverbial Main Street?

I can see the conversation back in October going like this:

Govt Official #1:  Looks like the only way we're going to save these companies is to back them up with government funds.

Govt Official #2:  Yeah, but when it's all said and done, there'll be over $1.5 trillion of cash floating in the economy...we'll have massive inflation, and the voters will riot in the streets!

#1:  True, but I have a plan:  Make sure that the money is tied up in such a way it never actually gets into someone's wallet.  For example, we'll buy warrants held buy the government.  If they are never cashed in, the supposed "money" is propping up the banks, but it never gets into circulation.  The same with the Treasuries--every government around the world holds another government's Treasuries...but they don't actually "spend" them except to go back to the originating power.

#2:  Hmmm...it could work.  After all, we just need to keep our buddies...er..."pillars of the economy" functioning until this crash is over.

#1:  And as long as the money is tied up with these contractual and regulatory obligations, they all look like assets, and can be quietly unwound when things are better.

#2:  Ok, as long as some idiots don't start trading them among companies as paying off debts or as executive bonuses...  What about our credit rating?

#1:  If everything works out smoothly, then we'll be able to convince the credit raters that this plan is sound, and that we actually don't have so much debt  on hand.

 

After that, it would just be a matter of pleading, begging, and threatening certain individuals to go along with it (Congress, other governments, major corporations, bondholders...)

I think I'll leave my tinfoil hat on for a while...

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#5) On May 27, 2009 at 12:03 PM, leohaas (31.52) wrote:

Just as important: look who doles out these ratings. They are the same companies that rated LEH debt "A" on the day Lehman filed for bankruptcy! How come the ratings agencies are still in business?

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#6) On May 31, 2009 at 5:31 PM, foolsMeThrice (99.63) wrote:

Just as important: look who doles out these ratings. They are the same companies that rated LEH debt "A" on the day Lehman filed for bankruptcy! How come the ratings agencies are still in business?

That that says it all to me that means anything A and below should be trading as junk.

Mortgage Meltdown, More Pain To Come

 

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#7) On May 31, 2009 at 5:33 PM, foolsMeThrice (99.63) wrote:

My total debt is $4,000.00 USD.

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