US Credit Downgraded

[Mr Morley]

Really, how ?

You're living on a pension and retirement savings. You're not producing anything, so you're a net drag on the economy. You're taking out but you're no longer putting anything in, same as any retiree.

[MTEMPLE]

You're living on a pension and retirement savings. You're not producing anything, so you're a net drag on the economy. You're taking out but you're no longer putting anything in, same as any retiree.

Interesting perspective. Would you prefer I get a job and actually take one away from someone who needs one ? I'm willing if you'll pay my capitol gains tax. Well damn, if I'm not producing somebody better be telling me were all my taxes are going and who paid for my real estate investments.

[annie]

What were you, a broker? I'm asking because what you're suggesting would make a lot of money for a broker, not the schmuck paying his fees. Index funds and automatic deductions are best for most people.

[MTEMPLE]

What were you, a broker? I'm asking because what you're suggesting would make a lot of money for a broker, not the schmuck paying his fees. Index funds and automatic deductions are best for most people.

I'm a college drop out from Columbia who started investing what little money he had and developed patients and a knack for it. Nothing more.

[Mr Morley]

Interesting perspective. Would you prefer I get a job and actually take one away from someone who needs one ?

Interesting comeback. One does not need to take a job from someone else to make money and/or be a net positive on the economy.

I'm willing if you'll pay my capitol gains tax. Well damn, if I'm not producing somebody better be telling me were all my taxes are going and who paid for my real estate investments.

It's "capital" not "capitol". And I'm not sure what you're trying to get at; if you're living off investments, you're not actually making money or growing the economy; your money is.

Unless you're the one who's managaing it, in which case you lied when you claimed that you were "retired".

[MTEMPLE]

Interesting comeback. One does not need to take a job from someone else to make money and/or be a net positive on the economy.



It's "capital" not "capitol". And I'm not sure what you're trying to get at; if you're living off investments, you're not actually making money or growing the economy; your money is.

Unless you're the one who's managaing it, in which case you lied when you claimed that you were "retired".

Sorry never saw investing as job when it details no more brain power than ordering from a menu. And you spelled managing wrong you bouche dag. The minute money becomes a living entity I will agree with you.

[Mr Morley]

Sorry never saw investing as job when it details no more brain power than ordering from a menu.

So you don't personally manage your own investments? That means someone else does, and they're the ones actually making the money, not you.

you bouche dag.

If you're going to start in with personal insults, I'm not going to chit-chat.

I just thought it was odd that someone who pays capital gains tax didn't know how to spell "capital".

[ArcticSplash]

Why are you treating this as the apocalypse.

All it means is that yields on US Treasury bonds will go up some (debatable after what happened yesterday). Almost all private debts are indexed off what US Treasury rates are, including almost every credit card out there, most US mortgages, etc. LIBOR used to be used more often but the credit crisis has made that standard harder to use because it become volatile.


So let's say 10 year Treasury yields go up to 4%. Is that the apocalypse? The danger level is when 10-year notes climb above 6.5% with no sign of going back down. It's a little above 2.5%-something right now, which is like the lowest ever.

So, your credit cards go from 12% to 15% at some point in the future. That's just going to make consumers and businesses take out FIXED rate credit before the jumps become apparent (probably next week), to lock in rates as soon as possible, then the demand for credit after the rate hikes will go down.

[ArcticSplash]

By the way... I saw this coming when the talk of it started a month ago.

This is what I did to make myself immune to the downgrade:

- My mortgage is fixed. So no change there

- I have about $12,000 in revolving credit card balances (all on one card). $3,000 of that is business expenses that gets paid off every two weeks (then another biz trip comes up and I charge another $1K-$3K back on again). The rest of it is a result of purchasing a new home. I was making debt service of $2,200 a month on this so I could have it back to zero by November/December. Because the rate hikes are coming, I need to reduce the cost of borrowing this money so:

- I opened a new Citicard with a $10,000 limit with a balance transfer (BT) offer of 18 months at 0% interest, including purchases.

- I opened a new US AIRWAYS Barclays card with a $14,000 limit, 0% for BT for 12 months.

- I opened a new Chase card with a $7,000 limit, 0% for BT for 12 months.


- I then transferred $9,500 (the max) from my revolving debt to the Citi card and sent the rest to the Chase card.


- Then to lower my debt service, I calculated when the 0% offers expire in weeks.

- I set up a weekly billpayment so a payment occurs every Friday across the cards to lower the balances down in the smoothest way possible over time. That's dropped my debt service down to approx. $780 a month from $2,200. When I was paying interest I was motivated to pay the stuff off faster to reduce the interest cost. Now I've eliminated the interest cost and I sacrificed my FICO score to do it (due to opening all those accounts and taking on all those hard inquiries).


I then took advantage of the Chase offer that includes 0% on purchases and bought a sweet 17" Macbook that I had in mind if getting myself for Christmas and instead bought it now. So Chase Bank is financing me a new computer at 0%. Schweeet.



So in 12 months my debt service drops from $780 to $545. Then in 18 months my balances are zero. My original card that I had this large balance on is already back to $0 balance, and that is my main card that I put all of my purchases on every day, so now instead of using my 1.5% cashback to lower my interest cost, I'm back to pocketing that.

Also, in 12 months the hit to my FICO score from opening all these new accounts AND taking the hard inquiries expires. I'll get most of those FICO points back. In 24 months the hard inquiries are deleted from my credit reports. So while I am far from being debt free, I've greatly reduced my cost of carrying the debt--it's the cheapest debt in American history. The rates that I am paying for my mortgage and now on my cards would have been considered obscene just 15 years ago.


Interest rates can go up to 5,000% APR for all I care. I'm not affected.

[ArcticSplash]

It looks like S&P indirectly blames the Tea Party here:

And, though the budget deal that finally was reached will deliver at least $2.1 trillion in savings over the next decade, that will not suffice, he said. "It's going to be difficult to get beyond that -- at least in the near term -- and you do need to get beyond that to get to a point where the debt-to-GDP ratio is going to stabilize."
Asked who was to blame, Chambers said, "This is a problem that's been a long time in the making -- well over this administration, the prior administration."
Congress should shoulder some of the blame, he said. "The first thing it could have done is to have raised the debt celining in a timely manner so that much of this debate had been avoided to begin with, as it had done 60 or 70 times since 1960 without that much debate."

Thanks Tea Party for pushing up the credit card rates on all Americans.

[k9loyal]

One statement and I think I know everything? After reviewing your post it seems to me that you are the one that thinks they know everything. You are not yet the bore that Morley is, but close. You are just as predictable though.

Lol, 20 posts in and you know everything already! Impressive.

[k9loyal]

During the debt ceiling fight, S&P warned that there was a 50/50 chance of a downgrade if spending was not cut by at least $4 trillion dollars.

QUOTE=ArcticSplash;405326]It looks like S&P indirectly blames the Tea Party here:




Thanks Tea Party for pushing up the credit card rates on all Americans.[/QUOTE]

[ArcticSplash]

He pointed to the decision by Congress about whether to extend the 2001 and 2003 tax cuts as one crucial area. "If you let them lapse for the high-income earners, that could give you another $950 billion," he said.

Personally, I have no problem with rolling back to the 1996 tax code. Apparently a number of influential people DO have a problem with it. But where are they going to run away from it... China? India? Europe?

Governments are cutting and they will have to cut more, which impacts GDP, but they have to raise revenue to pay their bills. If I have a huge amount of credit card debt and I stop using the cards and I'm only making the minimum payments, it would take me 16 years to get rid of that debt load. I would need to raise revenue (earn more income) to pay that down quicker.

We don't even have to completely roll back everyone to the 1996 tax code, we could just put two new brackets on at the top end and then adjust import tariffs across the board to put some of the burden on importers. Exporters will likely respond in kind to the import tariffs (how is that any different from China purposely retarding Rare Earth Oxide exports to jack up the prices?).

A 0.5% raise on across the board tariffs on everything that enters the United States and allocating that to the increased projections to entitlement spendingthat would slow the rate that Treasury has to hold Treasury auctions, in addition to reforming entitlements to slow their rate of growth would cure this problem. The Treasury could also introduce Methuselah Bonds (100 year maturities) which it has done in the past to offset the pain of higher yields. If the budget can be brought to a zero deficit situation and the debt rolled over into super long maturities, then we'll be AAA again.

[torts]

u-s-a!
u-s-a!

[torts]

"i think everyone should get food stamps, an iPhone, and an iPad. and a house. and a car. a prius would be fine."

[torts]

"The three main credit agencies, which also include Moody's Investor Service and Fitch, had warned during the budget fight that if Congress did not cut spending far enough, the country faced a downgrade."

http://www.huffingtonpost.com/2011/0..._n_919867.html

I don't get why we need to cut spending to have a good credit score. i thought the more you owe, the better off you are. this is so complex.

[ArcticSplash]

Hah.

Well, like everything... a risk rating is based off a model, and models are just a collection of static assumptions.

If you look at the risk score that determines your financial life, FICO, the more available REVOLVING credit you have, and the older those same accounts are, the higher your credit rating. Your capacity to take out massive amounts of revolving credit and having that ability for a long time (>9 years) is what gets you to an 800+ FICO score, no matter what your income is. You could be on food stamps and still get an 800 score as long as you keep that "dream" alive (and just not ever exercise the temptation of actually using that credit).

If you actually use that revolving credit though, once you start using more than 10% of it, FICO starts taking away points, and you are considered "overutilized" once you go over 50% of your total credit limits. You can also get hit if you max out a small card ($450 of a $500 line), but you might have a $35,000 HELOC sitting elsewhere with a zero balance. You violated FICO's model, so therefore, you get "downgraded".

[torts]

"it wasn't just a $700 billion dollar bailout. don't forget about the 'multiplier' effect." lol.

[ArcticSplash]

"it wasn't just a $700 billion dollar bailout. don't forget about the 'multiplier' effect." lol.

Actually, I'm starting to warm up to municipal bonds again. I'm not going to start pouring money in until the fall until I see more shakeouts, but now that these crazy low yields are going to be over with, I think investing in SAFE munis will be worth the tax-free status and get a nice >3% return for a change plus it's a good place to get a return on my money and not pay income tax on it, and I can use the returns to invest in bond ladders and stocks as a feeder fund.

I'm a small fry, so I'm investing for maturity, not trading coupons or swapping bonds for prices.


Just going to avoid cities like Chicago, Philadelphia, etc. Texas cities and upper-Midwest seem like safe bets, like South/North Dakota bonds, Wyoming, etc.

[torts]

I'm a fan of muni's. And yes, I'd stay away from "them" when investing.