Free Markets, Free People

Dale Franks

Dale Franks’ QandO posts

The golden nectar (Updated)

Apparently, I’ve been far too depressing. Fine. Forget the collapse of the dollar, hyperinflation, exploding debt, moribund economy, etc., etc. I mean, why be so down?  In the long run, we’re all dead, anyway, right? So why worry? Let’s talk about something we can all enjoy, then: Beer.

Actually, not beer, as such. I generally don’t drink plain old beer.  If you enjoy the watery, bland flavor of of your Michelob Light or Miller Genuine Draft, then knock yourself out.  I wouldn’t touch any of that stuff, though. I like to go deeper into the catalog, and enjoy the stout, the porter, and the fantastic subset of beer known as India Pale Ale, commonly known as IPA.  I’ve actually been on a tasting rotation of several different IPAs in the past few weeks, and I thought I’d jot down a few notes about them. And, living in what is probably the epicenter of craft brewing in the United States, I have lots of choices.

Stone IPA

Stone Brewery, which is conveniently located several blocks from my house, has an excellent reputation, and they have some great products, particularly the Imperial Russian Stout, and the Oatmeal Chocolate stout. and they’re probably best known for their Arrogant Bastard Ale.  You’d expect the Stone IPA to be similarly enjoyable, but…I dunno.  It really seems like a bland and uninspired IPA to me.  It has just enough hoppy bitterness to be an IPA, but considering the premium price, and the quality of Stone’s other offerings, it should be better.  There’s literally nothing about the Stone IPA that sets it apart.

Ballast Point Sculpin IPA

Ballast Point is another San Diego brewery, and the Sculpin IPA is very hard to find.  If you do find it, I suggest you grab all of it you can, as it’s produced in small batches, and anything other than the 22oz singles are hard to find. As are the 22oz singles. This is a very complex IPA. The hoppy bitterness has a hint of pine, and the finish is complex and spicy. This is an recognizable IPA in flavor, but with lots of extra complexity and character at the finish. Highly recommended, if you can find it.

Widmer Brothers X-114 IPA

Widmer is just now getting into IPA brewing, and are starting off a "Rotator Series" IPA which will eventually consist of four different IPAs.  The first release is the X-114 IPA.  I imagine that the primary motive for brewing this was the thought, "You want hops? You want bitterness? Then stand by!"  This is a very bold IPA.  The nose is very redolent of pine, as is the taste. It’s just pure hops. I call it "Christmas Ale" because that’s what it reminds me of.  It’s the smell of a clean house with fresh Christmas tree in the living room. The flavor is similarly crisp. I’d say you really have to love a bitter, hoppy ale to enjoy this, but if you do, this is the one for you. [UPDATE: I had another one after writing this post. This is an enjoyable brew if you’re an IPA fan, but if you’re just starting on IPA, you should stay away from it. It really has a strong character of hops, and newbies will find it far too astringent to enjoy.]

Sierra Nevada Torpedo Double IPA

This is one of the most balanced IPAs I’ve run across.  Everything about it is just good.  It’s not as complex as the Sculpin, and not as bitter as the X-114.  It’s balanced, crisp, and refreshing, without going overboard in any direction. It has a nice, clean nose of hops, and just enough bitterness to bite. There’s no single element of the Torpedo IPA that’s outstanding. Instead, all of the elements are in balance, resulting in a marvelous IPA that’s more bold than, say the Stone IPA, without being overpowering. If you can’t find the Sculpin—and you probably can’t—then the Torpedo Double IPA is equally good.

New Belgium Ranger IPA

Ranger IPA is very close to the Torpedo in fine balance, strong, but not overpowering bitterness, and a clean, hoppy nose.  I’d put it between the Stone IPA and the Torpedo for complexity of taste. At the same time, it seems lighter, crisper, and more refreshing than the Torpedo. It’s like an extra bitter summer ale.

And, finally, not an IPA…

Deschutes Obsidian Stout

This one is hard. Try it back to back with a Guinness (Extra Stout, not Draft), which is a dry stout, and you’ll hate it. Try it by itself, and you’ll love it. It’s an unusual stout, in that it has these flavors of malt and barley sweetness that the bitter hops overcomes at the finish. Lots of dark chocolate and coffee notes as well. It’s a much bolder stout than usual.  I wouldn’t use it as a refreshing summer drink, because it isn’t. This is a sipping stout that’s very robust and substantial. I’d think that you’d really need to be a porter or stout fan to truly enjoy this, as it’s definitely not an introductory brew. Also, it’s available no further east than TX.

New Belgium Summer Ale and New Belgium Fat Tire Ale

Both of these ales are very close in flavor. They are much more lightly hopped than an IPA, and both have a fuller, more malty hint of sweetness in taste.  The Summer Ale, however is a bit lighter, and crisper, and is an excellent, refreshing hot-weather beverage. Both are very good pale ales. I was drinking the Summer Ale a few weeks ago when we were having a heat wave here. You can drink it like water, but I wouldn’t recommend doing that, unless you don’t need to operate heavy machinery. Or stand up.

I went to BevMo this weekend, and picked up a couple of six-packs of some British imports: Fuller’s London Porter and Extra Special Bitter and Samuel Smith’s Oatmeal Stout, so I’ll be trying those out for the next several days. I’ll let you know how that goes. I’m especially keen to try the Samuel Smith’s Oatmeal Stout.  This is the original modern oatmeal stout. First brewed in the 1750’s, Smith’s produced it until after WWII.  They resurrected this type of stout in 1980, and were quickly followed by others in the UK and US.

UPDATE

I put the two different bottles of Fuller’s in the fridge this afternoon, and I couldn’t wait to taste it this evening.

Fuller’s ESB (Extra Special Bitter)

It pours a dark amber, with a thin, tan head. The nose is filled with hints of apricot and dried fruit. The taste comes on with a very slight hint of bitterness that is quickly overcome by a full malt flavor with hints of toffee and caramel, and finishes with a taste of whole-wheat bread sweetness. it’s got slightly more carbonation than I remember from pub draft bitter in the UK, which is only to be expected from the bottle, which dissipates after the glass has been sitting for a few minutes. Other than that, it’s very much in the tradition of a draft pub bitter. Probably a good choice for people that find the bitterness of an IPA is too much, and prefer the milder, sweeter ales. Or people, like me, who just like to try different ales. Even The Lovely Christine, who hates beer, tasted this and pronounced it drinkable. It’s that good, and that mild.

Fuller’s London Porter

Oh. My. God. It pours black with a red flare.  Before you even sip it fills your nostrils with a strong essence of earth and wood smoke. The taste attacks with strong notes of coffee and chocolate and toast. And it finishes with the bitterness of roasted malts, rather than the astringency of hops, followed by sweet toffee aftertaste. It has a thick, substantial mouth feel, and is smooth and creamy. Under it all is this sweet, malty, richness. I’ve had a number of American "Smoked Porters", but nothing like this. The coffee and cocoa notes are so pronounced! It’s lightly carbonated. This is just absolutely fantastic. Rate My Beer gives this a perfect 100. Now I know why.

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Dale Franks
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Style Evolves

More horrific PHP programming of the maddeningly confusing WordPress theme system has produced the magical Google+ button to "+1" each individual post. If you’re a Google+ member, you should probably click that like a crack addicted monkey banging on the dispenser bar for his next fix.

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2012 is gonna be nasty

Mitt Romney is upset that the Obama team is planning to run a negative campaign of personal attacks against him.

Obama has remained personally popular — scoring as high as an 86 percent approval rating in the District of Columbia in a recent Gallup poll. But while he’s personally well-liked, the president’s overall approval rating is 43 percent compared to 48 percent disapproval, according to Gallup.

With that knowledge and the poor economic climate, Politico reported that the Obama campaign has no choice but to give up the 2008 campaign of "hope" and turn negative, portraying the incumbent as "principled" whereas Romney is an "opportunist." 

By the way, going to a DC Poll to prove how well-liked Obama is, seems like a pretty clear case of cherry-picking your polls for a positive result. In any event, there’s more from Politico:

The dramatic and unabashedly negative turn is the product of political reality. Obama remains personally popular, but pluralities in recent polling disapprove of his handling of his job, and Americans fear the country is on the wrong track. His aides are increasingly resigned to running for reelection in a glum nation. And so the candidate who ran on “hope” in 2008 has little choice four years later but to run a slashing, personal campaign aimed at disqualifying his likeliest opponent…

“Unless things change and Obama can run on accomplishments, he will have to kill Romney,” said a prominent Democratic strategist aligned with the White House.

The onslaught would have two aspects. The first is personal: Obama’s reelection campaign will portray the public Romney as inauthentic, unprincipled and, in a word used repeatedly by Obama’s advisers in about a dozen interviews, “weird.”

Bill Clinton’s 1992 campaign focused on a now-famous aphorism: "It’s the economy, stupid." It was the top theme of the campaign that carried the Arkansas governor to the White House. Skip forward 20 years, though, and the Obama administration’s campaign can rightfully be characterized with the slogan "It’s anything but the economy, stupid!" Seeking re-election with 9%+ unemployment and sub 2% GDP growth means that the economy is literally the last thing you want to discuss.

In fact, it’s difficult to figure out what, exactly, the Democrats can push as a positive result of the Obama Administration.  His signature achievement, Health Care Reform, remains deeply unpopular. The debt to GDP ratio has risen to 100%—and no doubt will be higher next year. For all his talk about deficit reduction, the president hasn’t actually put forward a written plan, though he has given a number of speeches.  His signature economic reform at the moment appears to be increasing taxes on "the rich", i.e., any family making more than $250,000 in household income. But beyond that is the deeper fear that the social welfare statism that has been the central tenet of the Democratic party for the last 30 years is simply unsustainable.  Not only is it nearly impossible to financially justify any real expansion of social democracy in the US, it’s difficult to see how even the current levels of welfare state spending can be sustained.

For the last three decades, Republicans have made soothing mouth noises about smaller government, while in actual practice, have continued driving the car off the cliff. The main difference between them and the Democrats, is that the Republican establishment has been firm in their refusal to upshift past third gear. On most occasions, anyway. That hasn’t really been particularly helpful. Both Republicans and Democrats in the political class have embraced a set of assumptions that spending increases are baked into the budget baseline, that any reductions in that baseline increase are "cuts", and that the time for financial rectitude—if it ever came—was at some hazy point in the far future.

Sadly, we’ve learned, as Rams coach George Allen used to tell us, that the future is now.

So, now, there’s the rising threat of the TEA Party, and their explicit argument that the welfare state experiment has been a financially disastrous failure, in that, even if one were to stipulate, arguendo, that the Democratic Party’s policies accomplished everything they wished in terms of creating a compassionate society, it would still be doomed to end due to the unsupportable financial burden it imposes. But, of course, while the latter is true, the former certainly isn’t, so there’s declining enthusiasm for continuing to support expensive programs that simply don’t accomplish their stated objectives.

In such an electoral climate, what remains, in the absence of any solid record of accomplishment, growing distrust of government, and financial/economic failure, is simply the will to power. And to maintain that power, destructive personal attacks are just about the only tool left in the Obama campaign toolbox. After all, we’ve already seen the change, and, so far, it hasn’t offered much hope.

The attacks that have been launched on the TEA Party are instructive.  If you can judge the quality of an opponent’s threat by the response it provokes in his enemies, then the TEA Party is enormously threatening to the entrenched political class. So far, they’ve been subjected to accusations of racism, extremist violence, been blamed for the failure of debt ceiling negotiations and the S&P downgrade of US debt, and derided as cranks and "hobbits".  Nearly every political ill has been ascribed to them by the political class—Democrats and establishment Republicans alike. I can only presume that this is because the political establishment perceives them as a threat.

By the same token, any Republican candidate can now expect withering personal attacks in response to any perceived electoral threat to President Obama. It may come from the Obama Campaign. It may come from media surrogates like Tina Brown’s Newsweek, which intentionally ran a cover picture this week whose sole purpose was, apparently, to make Michelle Bachmann look like a loon. It may come from campaign surrogates like SEIU union goons to heckle and disrupt campaign rallies. 

But, there’s no doubt that we’re in for a high level of personal nastiness and invective. This election is not going to be about some minor adjustment to spending, or some trifling adjustment of tax rates, or some nibbling at the edges of the regulatory state.  What is at stake in the 2012 election is the continuation of a world-view; a political philosophy that sees ever-larger government as the cure to whatever ails us. This next election is the first big battle for the survival of that worldview as the majority view of the political class, or the survival of the insurgent TEA party idea that government has become to large, too intrusive, and too expensive, so therefore must be radically reduced. There is little room to compromise between these two visions of government.  Indeed, in most ways, they are worldviews that are mutually exclusive. Over the next decade or so, we are going to learn which of these two views will prevail, and if the US, as presently composed, will remain a united polity.

We are now at a point where the fabric of the Republic is about to be tested as it hasn’t been since the Civil War, and this election is the first major event in that test.

It’s not going to be pretty.

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The Tea Party downgrade

“Look at the history of this – the fact of the matter is that this is essentially a Tea Party downgrade. The Tea Party brought us to the brink of a default.” –David Axelrod, top political consultant to President Obama, in an appearance on “Face the Nation”, Sunday, 7 August, 2011

Damn those Tea Partiers, and their rigid insistence on slashing the Federal budget. If only they were more flexible on spending and increased taxes, we’d be just fine. Their demand that we substantially cut federal spending, balance the budget, and pay down the debt without significant tax increases has now caused S&P to conclude that we aren’t serious about getting debt under control.

That’s the Democrats’ argument anyway. And they’re sticking to it.

I will defer to Protein Wisdom’s Jeff Goldstein for his response:

For all those — both left and (establishment) right — inclined to excuse their own complicity and try to scapegoat the TEA Party, which remains the one faction who actively pushed for serious, actual debt reduction and a return to fiscal sanity, take note here: we recognize that it’s been your strategy since the downgrade to seize on the warnings against “political gridlock” in order to insist that a failure to “compromise” on the part of the TEA Party supporters is what led to the downgrade. We also recognize the dishonesty and cynicism of such a strategy: as has been noted time and again, Cut Cap and Balance was the compromise, with the vast majority of TEA Party supporters in the House voting for the bill, which gave the President his debt ceiling increase in exchange for both real cuts and a mechanism by which to control future deficit spending and debt.

Who didn’t compromise — and whose political intransigence is at the heart of the downgrade — is the Democrats, who refused to come up with their own plan, and who then refused to even allow CC&B come up for a vote. This faction — along with the go along/get along GOP establishment — is now looking to pass blame for their own willingness to block compromise onto the TEA Party.

It won’t work. 66% of the population backed CC&B; 75% backed a Balanced Budget Amendment. What they got instead was more spending (the single largest increase in history) for more empty promises of future cuts in the rate of spending.

This didn’t come anywhere near to what the credit agencies demanded, and it is not lost on us, no matter how feverishly you wish to spin it, that what is missing from any plan but those pushed by the TEA Party is any “‘stabilization and eventual decline’ of the federal debt as a share of the economy,” something that simply won’t happen without real cuts. Raising taxes on “millionaires and billionaires,” even were you to confiscate all their wealth by taxing them at 100%, would run this government for less than a year. And once you confiscated it all, you’d have to then look elsewhere for new “revenues” to keep the government running.

The political class is unwilling to accept a simple premise: They’ve looted the system.  And they’ve looted it to such an extent that some notional increase in revenues obtained by taxing the "rich" can never make up for the spending.

Blaming the downgrade—or anything else—on the only group in America who are willing to fix the problem, rather than kicking it down the road as far as they can, is just a non-starter.

Or, it would be, if there weren’t so many people who weren’t so desperate to believe the gravy train can roll forever.

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The first post-downgrade business day

The yield on the 10-year note has dropped to 2.44%, down from 2.57% at Friday’s close. I’m thinking this is telling us the economy’s on the way into the toilet, as the standard reaction for a credit downgrade is rising interest rates, to cover the extra risk. The Dow’s long slide, which began on 22 July–and continues with a 250 point loss so far today–is probably telling us the same thing, as earning expectations slide. Since the downgrade was one agency only, and the downgrade only to AA+, economic factors are clearly weighing more on the bonds than the downgrade.  On the other hand, if you’re a gold investor, you’re probably a little happier today, as Gold hit $1,715/oz.

The key takeaway so far today is the continuing decline in yields, which isn’t good news. Thank goodness there’s no economic releases today. I’d hate to see what more bad news would bring.

So, back into recession, it looks like.

One of the more interesting things I’m wondering about, in a horrified kind of way, is what effect the downgrade has on corporate paper.  A number of institutions have investment rules that require they concentrate their investments in AAA-rated securities.  But, one of the general rating rules is that subsidiary corporate and government instruments cannot have a higher rating than their sovereign instruments. So if the US Government doesn’t have a AAA rating, no subsidiary US corporate or government paper should have a AAA rating either.

So, what does this mean for the handful of corporate and government instruments that were rated AAA prior to the downgrade? Do they get downgraded, too?  If so, where do the institutions with a AAA rating requirement go with their money?

I’m not at all sure how this works. As we’ve been saying a lot in the last week or so, we’re in uncharted territory.

END OF DAY WRAP-UP: Well, that could’ve been worse, I suppose.

INDEX Close
Dow 10,810.83 -634.76 (-5.55%)
S&P 500 1,119.46 -79.92 (-6.66%)
NASDAQ 2,357,69 -174.72 (-6.90%)
10-Year Yield 2.34% -0.22%
Comex Gold $1,710.20/oz (+3.7%)

I’m not sure how much worse it could’ve been, though.

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Observations: The QandO Podcast for 07 Aug 11

In this podcast, Bruce, Michael, and Dale discuss concerns about Turkey, and the debt limit.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

Mark Steyn is brilliant—and grim

Mark Steyn, writing in Investors Business Daily, isn’t pulling any punches about what the near future holds for us if the Federal government keeps spending like there is no tomorrow. There won’t be.

[B]y 2020 just the interest payments on the debt will be larger than the U.S. military budget. That’s not paying down the debt, but merely staying current on the servicing — like when you get your MasterCard statement and you can’t afford to pay off any of what you borrowed but you can just about cover the monthly interest charge.

Except in this case the interest charge for U.S. taxpayers will be greater than the military budgets of China, Britain, France, Russia, Japan, Germany, Saudi Arabia, India, Italy, South Korea, Brazil, Canada, Australia, Spain, Turkey and Israel combined.

When interest payments consume about 20% of federal revenues, that means a fifth of your taxes are entirely wasted. Pious celebrities often simper that they’d be willing to pay more in taxes for better government services.

But a fifth of what you pay won’t be going to government services at all, unless by "government services" you mean the People’s Liberation Army of China, which will be entirely funded by U.S. taxpayers by about 2015…

And even those numbers presuppose interest rates will remain at their present historic low. Last week, the firm of Macroeconomic Advisors, one of the Obama administration’s favorite economic analysts, predicted that interest rates on 10-year U.S. Treasury notes would be just shy of 9% by 2021. If that number is right, there are two possibilities:

The Chinese will be able to quintuple the size of their armed forces and stick us with the tab. Or we’ll be living in a Mad Max theme park. I’d bet on the latter myself.

And we all know who’ll be running Bartertown.

Look, there’s no way to sugar-coat this. What’s coming isn’t gonna be pretty. Too many politically powerful groups have their fingers stuck too deeply into the DC pie to let it all just slip away without fighting tooth and nail. There are too many people who believe the gravy train of benefits coming out of DC should be endless to kiss that goodbye without a fight.

Look at what has been happening in Greece.  They’ve built up two generations of people who cannot and will not accept that they’re simply out of money.  Despite the fact that system has been thoroughly looted, they are adamant that the looting should continue.

If we don’t cut spending—and I mean real cuts, not cuts to some imaginary baseline that has $9 trillion is spending increases baked in—and some sort of serious tax reform that widens the tax base to raise more revenue, we’re done.

And don’t come back at me with some lame "Our GDP:Debt ratio was 120% at the end of WWII" silliness.  Yes it was. And you know how we fixed it? We cut Federal spending from $92 billion in 1945 to $38 billion in 1949. For 2011, 40% of the federal budget was financed with borrowed money: We’ll spend  $3.818 trillion, of which  $1.645 trillion is borrowed. If we funded only defense, Medicare/Medicaid, and Social Security, and interest on the debt, we’d still have a deficit of $673 billion. Just to balance the budget this year—forget paying off any debt—we’d have to cut an additional ~25% from Health, Defense, and Pensions. Follow the link and download the CSV file, open it up in Excel, and run the numbers yourself. The magic number to balance the budget this year is the revenue of $2.174 trillion.

There’s no big mystery as to why we got a downgrade from S&P. The mystery is why Fitch and Moody’s haven’t downgraded US debt yet.

To begin paying down the debt will require massive cuts in government spending, substantially widening the tax base, and some healthy economic growth—and good luck with that as we add another couple hundred k government workers to the unemployment roles, lay off 1/3 of government contractors to boot, and start asking the bottom 50% of taxpayers to actually, you know, pay taxes, along with everyone else.

If you’re under 50, and reach retirement age with any modicum of personal wealth, you can forget seeing a dime in Social Security or Medicare benefits when you retire. You’ll be means-tested right out of all that.

You think the debt ceiling battle was disruptive? Well, hold on to your hats, folks.

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S&P downgrade coming tonight? (Updated: Downgrade: AA+)

Well, this is encouraging:

U.S. government officials are bracing for the rating agency Standard & Poor’s to downgrade the country’s credit as early as this evening or take other possible action, according to someone familiar with the matter.

Open comment thread to answer the question: How screwed are we?

UPDATE: ABC news adds more:

A government official tells ABC News that the federal government is expecting and preparing for bond rating agency Standard & Poor’s to downgrade the rating of US debt from its current AAA value.

Officials reasons given will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction. A source says Republicans saying that they refuse to accept any tax increases as part of a larger deal will be part of the reason cited. [Emphasis added—Ed.]

So, it’s all your fault, Republicans.

UPDATE II: Politico’s Ben White (@morningmoneyben) tweets, "Senior govt official tells me S&P had planned to downgrade 2nite. And now may not. Weirder and weirder".

UPDATE III: Jake Tapper updated the ABC story above with new developments:

A third official says that S&P made a "serious mistake" in its analysis, "based on flawed math and assumptions," so the Obama administration is pushing back. But even though "S&P has acknowledged its numbers are wrong, it’s unclear what they’re going to do.," the official said.

S&P refused to comment.

What a strange set of developments.

Update IV: The Wall Street Journal provides a clearer look at what’s happening:

A mathematical error discovered late Friday by Treasury Department officials threw into limbo, at least temporarily, plans by ratings firm Standard & Poor’s to downgrade the top-notch AAA credit rating the U.S. has held for 70 years, people familiar with the matter said…

S&P officials notified the Treasury Department early Friday afternoon it was planning to downgrade the debt, a government official said, and the firm presented its report to the White House. S&P has previously warned such a downgrade might come if Washington didn’t move to comprehensively tackle its long-term fiscal woes.

After two hours of analysis, Treasury officials discovered that S&P officials had miscalculated future deficit projections by close to $2 trillion. It immediately notified the company of the mistakes.

S&P officials later called administration officials back to say they agreed about the mistakes, though they didn’t say whether it would affect the rating. White House officials remained waiting Friday evening to see what the company would do.

That’s an enormous mistake for S&P. If you’re about to issue a downgrade to the United States, you’d better check yourself, son.  After this, the Treasury Department will go to the wall on S&P if they try to downgrade.

Big black eye for Standard & Poor.

UPDATE V: Holy crap! CBS White House reporter Mark Knoller (@markknoller) just tweeted: “S&P has downgraded US Treasury securities from AAA to AA+. S&P bills downgrade as an ‘unsolicited rating.’" Oh, it’s on now. S&P has got big brass ones, because the Treasury Department and White House will now go 10-8 on their ass, after finding that $2 trillion math error.

UPDATE VI: Well, the first responses for the downgrade are in at Reuters. They seem pretty measured. Optimistic even.

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Nobel Prize-winning economist endorses my economic analysis

Well, this is interesting.  Paul Krugman finally agrees with me:

[W]e already know what isn’t working: the economic policy of the past two years — and the millions of Americans who should have jobs, but don’t."

I’d just like to point out that I knew those economic policies wouldn’t work back in 2009, writing about them here. Since then, I’ve just been watching the kangaroo. So It’s nice to see Krugman joining me in declaring "fail"—though he does so with the advantage of 20/20 hindsight.

I eagerly anticipate my upcoming invitation to Sweden.

Where we diverge is in providing solutions. As always, Krugman’s solution is more spending, and more debt.  But with debt already at 100% of GDP, we’re really in uncharted waters, and I have no confidence that more debt is the answer, if the problem is the existing debt overhang.

The real question I’m concentrating on is, "At what point do the markets recognize not only that the debt path we’re on is unsustainable, but that it is going to be impossible to pay it back?"  Is that 120% of GDP? 150%?  I don’t know.  But I fear that we’re going to learn the answer.

On the bright side, I’ll be able to pay off the remaining 19 years of my mortgage for the cost of a nice hat. On the down side, a new Astros baseball cap will cost $200,000. On the bright side, again, the $100,000 from my Nobel will cover half of that, so it’s all good.

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Gloomy Goldman-Sachs

James Pethokoukis writes, "Goldman Sachs drops this H-bomb on the Obama campaign:

We have lowered our forecast for US real GDP growth further and now expect real GDP to grow just 2%-2½% through the end of 2012.  Our forecast for annual average GDP growth has fallen to 1.7% in 2011 (from 1.8%) and to 2.1% in 2012 (from 3.0%).  Since this pace is slightly below the US economy’s potential, we now expect the unemployment rate to be at 9¼% by the end of 2012, slightly above the current level.

Even our new forecast is subject to meaningful downside risk.

So, we got that goin’ for us.

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