US Rating Cut to AA+ from AAA by Fitch
bloomberg.com
bloomberg.com
Fun fact: Microsoft has a higher credit rating from S&P (AAA) than the US government (AA+) - https://www.microsoft.com/en-us/investor/faq.aspx
(Fitch withdrew their MSFT rating at the start of the year, but it was also AAA)
Like this isn’t just about money and how much you make, that’s what a company is, a country is life or death, peace and prosperity or war and famine.
JFC…
- The worlds largest military budget
- More aircraft carriers and aircraft than the rest of the world combined
- Is also not nuclear armed (and the only folks to actually nuke anyone in anger)
- Their own printing presses for the worlds reserve currency
- Sovereignty over the rating agencies physical location.
The 14th does not override Congress' authority to tax and spend ... or not spend. Article I, Section 8.
What it hasn’t authorized is how the executive should raise the money Congress has told it to spend.
There is no limit on government borrowing besides the debt limit which comes very directly in conflict with the U.S. government’s constitutional mandate to pay its debts.
In nearly every other country the constitution would very clearly supersede the debt limit congress has created, but it’s not clear whether that’s a reliable heuristic in the U.S.
Only Congress can raise money through spending bills.
Ideally they are a paired activity, but issuing debt can be done with no corresponding spending. And spending can be done with no corresponding (exactly) debt or taxes.
And taxes are gathered by the executive, and the amount of taxes actually gathered is also independent of either body (as they’re a function of tax rules and executive effectiveness * economic activity, etc.).
[0] https://justinamash.substack.com/p/the-debt-ceiling-isnt-wha...
In theory, the US government would never go bankrupt as long as they can print more money. Which they always can, the dollar isn’t backed by gold anymore.
https://www.businessinsider.com/morgan-1895-crisis-and-1862-...
Now that dollar is fiat, there would be no reason for US to go bankrupt. New unbacked dollars can be issued.
Letting folks be convinced otherwise is exactly how we got in this situation.
Everyone who has worked in a large corp has experienced finance refusing to pay for something unless you jump through some specific hoop.
Many have experience with budgets being curtailed (despite earlier promises), bosses having to kiss up to the finance folks to get PO’s paid, etc.
And dealing with executive infighting, or having to appease investors or shareholders, etc.
The issue we’ve got is folks have been convinced that this isn’t us trying to all work together and find a compromise we can all agree on (even if we’re not happy with it), but rather an us vs them zero sum game of annihilation. And the latter is an extremely dangerous mindset to be in, but beneficial to specific types of predators.
If a companies shareholders were somehow convinced that the CFO should just not pay due bills or payroll unless the CEO caved on his pet project, we’d see the same thing. Except outside forces would intervene pretty quickly, and you’d have to be insanely dumb as a shareholder to think it was going to end any other way.
The US has nukes and the most effective military in the world (near as anyone can tell), ain’t no one want to get involved in that…. Except folks who already are our enemies, anyway.
Further, Microsoft doesn’t have the legal right to demand their shareholders and every employee etc hand over any money Microsoft asks them to hand over, if it really wants to pay off its debts.
And the big problem with the cut was it made no sense. Which was evident from the fact that the US continued to enjoy nearly a decade more of sustained borrowing at nearly 0 rates and the cut itself had no impact.
So IDK what the material impact for this downgrade ends up being but it does not seems like a big deal.
> When we last talked about this in May, I looked at various rules — for money market funds, for Federal Reserve collateral, for cleared derivatives margin, for bank and insurance capital — until I got bored; all of them say that Treasuries are Treasuries, that they are treated as about as risk-free as it gets, without any reference to ratings. [...] If you have that trade, please email me! If you were allowed to hold Treasuries when they were rated AAA (by Fitch), but not now that they are rated AA+ (by Fitch), I would love to hear about it. But I don’t think there are a lot of those people out there.
The dumber members of the caucus seem to have power, so the chances of some kind default are higher. They really want a downturn to help their election chances, and are dismayed that the economy has done well.
Why?
- The US government can produce as much currency as it needs to because it's a sovereign country. Hence, there is not immediate risk of default.
- And even if the US government couldn't produce any more dollars, there are plenty of other ways to get hold of the circulating dollars. After all, Congress can pass laws to raise taxes, seize assets, etc.
It was probably updated later.
It would take many more cracks in the edifice to make them subject to typical market pressures.
There may be a lot of issues with the US government’s issuance of debt but a lack of market pressure isn’t one of them.