Fitch downgrades U.S. after debt limit stalemate
politico.com
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I think this has more to do with the US spending itself into debt in an unsustainable way. Up to $32T now. The interest carrying cost of that debt is soon going to surpass the entire defence budget. With no end in sight. It doesn't take an expert to see that's not fiscally responsible.
While nobody seriously thinks the US will default anytime in the near future, they're obviously going to have to keep rates low and have the Fed buy bonds with "printed" money, inflating their way out of it. There's no free lunch. Future economic prospects for the US have never been so grim in living memory, and that's not some doomsday fear-mongering, that's just basic economic theory and math. It's well known that high debt levels weigh on future economic growth. At the end of the day it has to be paid, either by raising prices of everything (inflation) or raising taxes. Both are incredibly destructive to the economy.
https://realinvestmentadvice.com/deficits-debt-and-why-32-tr...
Right right because the Republican party ever even once denied Trump what he wanted before 6/01
That’s always a possibility, but as we’ve seen with the recent attempt to spend $500B to pay off student loans, the SCOTUS does a decent job of stopping the truly egregious.
Government debt and household debt don't work the same way.
This a common fallacy that serves political ends, but they are not directly comparable.
In what way? Enlighten us. Are you a MMT proponent? That's a bullshit theory that's fallen on its face pretty spectacularly since 2021. The debt has to be paid, either with inflation or taxes or both. Household debt also has to be paid with income (households don't have the moeny printing option, but that's not a get-out-of-jail free card either.) The US has been spending $1 to get $0.20 of GDP growth. That's not only unsustainable by any measure, it's also just lighting money on fire. The most egregious venture-backed sell-a-dollar-for-50-cents startups don't have a track record that bad.
> This a common fallacy that serves political ends
I don't care for what you're implying. Careful not to assume too much about me, you'll be wrong.
With all of that, I think it will be some time before we can accurately analyze what these events mean for economic policy.
That's a nice sound bite but it's not true as the majority of the tax breaks went to the middle class:
https://thehill.com/opinion/finance/584190-irs-data-prove-tr...
https://www.washingtonpost.com/politics/2018/11/14/does-trum...
https://www.cnn.com/2019/02/26/politics/fact-check-sanders-t...
Even if the majority of the tax cuts went to the wealthy, there's nothing inherently wrong with the people who are paying the most taxes getting the most out of a tax cut. The other end of the income spectrum makes that immediately apparent. Would you expect every tax cut to directly pay money who don't pay any taxes at all?
Can we never lower taxes on people making more than some arbitrary income? Or do you mean that after some arbitrary income amount, it's never okay to ever get a tax cut?
You can google as well as I can, and if you're well-versed enough to have a firm opinion about MMT (and no expansion of the acronym needed) then you do not need my handholding.
But anyway, I submit that the extra-ordinary claim would be the parties with the control of money supply and taxation structure, and the parties without it, are on an equal footing here when it comes to debt. Graeber has things to say on the topic. IDK, go ahead and make the case that they line up despite that.
As for "implying" - it really does serve political ends, I hear party leaders across the wide wide spectrum from Mr Sunak to Mr Starmer all use this same lazy analogy regarding austerity measures, it's not one or the other. Yeah, assumptions are bad, huh.
Well, obviously.
There’s limits to the parallels you can draw here, but unsustainable spending into debt is bad for both households and states. Period.
What the US government is doing is unsustainable. The onus is on you if you want to argue otherwise, I already submitted a link that shows the problem with it.
If the US keeps going at this pace inflation will either get really bad, or taxes will get really high while spending gets slashed. Or some combination of all of it. Either way, it can't continue like this for long before things break in a bad way.
32T in debt is bad, but if nothing changes that could be >70T in a decade.
The economic growth is too slow to sustain that.
You're just repeating your assumption. You have not shown that government debt and private debt are even the same thing at all. What if they're opposites? (hint: who is government debt owed too?). One more time, Graeber is good on this topic. https://positivemoney.org/2015/10/breaking-taboos-david-grae...
"saying "debt is bad, whoever's debt it is" is a bit like saying "that umpire's batting average is terrible, get them off the field". It's a fundamentally different game for them, argument that rests on the assumption that it works the same will go wrong rapidly.
Your fallacy is assuming that both glasses contain water. Again you're just restating your assumptions as truth.
I refer you to my original parent comment; "Government debt and household debt don't work the same way." and "You have not shown that government debt and private debt are even the same thing at all"
What I am saying, and all that I am saying, is that they aren't the same thing, at all.
Saying "this is larger than that" is neither here nor there when they aren't comparable.
Saying "larger government debt must be bad because more household debt is bad" is not a valid argument. It might be good or bad, but not for those reasons. Argument that rests on the assumption that it works the same will go wrong rapidly.
Everything is cyclical, and no one truly expected the US to rise indefinitely. Perhaps we're past the peak now.
This is in the context of the USD maintaining its relative value.
People who aren’t familiar with the bond market would be surprised to learn all the ways you can lose money on perfectly secure bonds - if you have to sell before maturity.
Here we have three signals among others, go ahead and ignore them I guess…
Batteries are getting better, but energy density is still superior with oil
Oil used for many manufacturing processes and items. I’m all for switching from plastic to glass, but the world loves plastic
Speaking of the world, developing nations still rely on coal, never the less moving to electric cars
I’d like to think we would make progress in medium term, but given the geopolitical instability, if a major world war breaks out (if it hasn’t already), I think we’d be stuck in time with oil-to-electric progress unless there’s some national security reason to go away from it.
But relying more on our grid seems to be more of a national security risk, given it’s weakly protected. And the US has been (still is?) a net exporter of oil. Worst case we ramp up production if the Saudi’s/OPEC do something crazy.
I’m still young, but I see a constant cycle of XYZ tech being promoted, promised, investors jump in, then it evaporates for 5-10 years and we slowly get the actual promises (sometimes). There’s a famous graph for this somewhere.
$10k buys quite a bit of fuel.
But if someone wants to send me $10k I’ll buy the Pacifica today ;)
Otherwise it’s a Kia or Sienna for us.
We’ve even looked at going up to the electric Transit and the money just doesn’t work out.
Downsides - second row seats are not removable, there is no interior kidspycam, they just don't exist (have waited 1+ years so far, and time is running out)
Upsides - best mileage
EV battery weight is the killer. Nevermind the charging issues.
You are most likely thinking of the Gartner hype cycle, which is about visibility of topics. I think we reached the plateau of productivity by now. BEV cars also have their issues, but in many cases are the better pick over ICE cars.
A way more fitting graph to look at now are sigmoid functions, also known as sigmoid functions. They tend to model the technology adoption life cycle fairly well. Adoption in the beginning is fairly slow then speeding up just to slow down again until the technology is affordable and good enough to also handle special needs. We are currently in the phase of accelerating adoption that looks like exponential growth.
I would say the S&P500 and the long-term economic productivity it represents is a far more important economic asset of the US than their currency. Many European pension funds would have little to show for if they didn't hold trillions in US stocks.
Btw, what's up with the scale? Wasn't A good enough at some point, and they made A+, then later AA etc.? What would happen if someone decided AAA+ is the new best and all the AAAs are now not at the top anymore?
That makes 25 grades above D if I’m not mistaken.
[1] https://finance.yahoo.com/news/stock-futures-slide-after-fit...
National spending per capita is higher here in Denmark but we actually tax our wealthiest 10% so we have a lower debt per capita than many other developed countries.
Because one of the two dominant political parties has adopted a strategy for the past several decades of trying to cripple governmental programs by reducing their income or otherwise increasing their outflows (see: USPS), and the national debt is a convenient scapegoat for them to make their point about "see, we're spending too much!"
It's a somewhat unique disfunction, and few countries in the world would survive these kinds of games.
If U.S. somehow fails, then it's all at large.
Even if the US doesn't fail, it isn't really credible to claim its debt is an AAA security. For a lot of participants in the market there is an obvious risk that the US will take their money and not return it.
Oh you weren't talking about those war crimes? Only the one's the media tells you to be mad at? Rachel Maddow would know what is justified in war, given she was just the keynote speaker at a weapons manufacturers conference.
Later on, you decide you no longer have to honor that IOU debt because you no longer like what that dude does with other people. You've also put that coal to a good use. A win-win for you.
That said, I'm not sure that this is any more dangerous than any other kind of debt. In the past, people considered US government debt to be equal in safety to a savings account. It is definitely a little more risky than that these days. The FDIC has never said "just kidding about that insurance!"
The problem is the U.S. simply being unwilling to pay interest. Which you cannot solve by printing more money.
That'd get you nowhere. You mean trillion. A crazy amount of money.
How many times has this ever happened in reverse?
Democrats must stop compromising with people that blatantly do not operate in good faith.
How many times have democrats been pro-gun and anti-abortion?
Of course republicans play games with the debt ceiling- part of their platform is predicated on cutting government income / spending.
Democrats don’t suddenly pass anti-abortion bills when they have the House.
Part of their _campaigning_ is on cutting government spending. But when they're actually elected the spending goes up.
https://www.presidency.ucsb.edu/statistics/data/federal-budg...
"Since 1960, Congress has raised, extended, or revised the debt limit 78 separate times, of which 49 were under Republican presidents and 29 were under Democratic presidents, according to the Department of Treasury. In each of those instances, Congress took action on the debt limit before the nation defaulted."[0]
> Democrats must stop compromising with people that blatantly do not operate in good faith.
I wouldn't want any politician (regardless of party allegiance) to agree on any spending if there is not also an agreement on how to finance such spending.
If companies or individuals were to run their own finances like politicians run government finances, they'd go bankrupt and/or land in jail pretty quickly. Why should our elected representatives (yes, all of them!) not have to worry about this stuff?
In the case of the debt ceiling spats, Congress has literally already authorized the money to be spent. The debt ceiling prevents the executive branch from borrowing money to spend according to Congress's wishes. That's why everyone thinks it's weird.
If you were a business or a family, you'd talk about how you plan to agree to finance any serious purchase before (or at the very least in parallel ) with agreeing the purchase itself.
Congress authorizes say 10T to spend. Over the next years the president spends 7T and then the coffers run empty and says hey I need more money to do what you told me to do! And then congress raises the debt ceiling and borrows to cover that 3T.
Which of course differs from your example in that when you go to buy say a car you also agree to borrow the money (or not). Congress only makes just-in-time decisions.
I also don't think its true that as a business you'd have made that decision. Do you consult the CFO every time you use the corporate card?
I'm not sure what to understand by politicians "agreeing 10T of spending" if everyone involved knows the financing has a hard stop at 7T.
That's not agreeing 10T, that's agreeing 7T. Plus a 3T wishlist.
Well, technically they don't know there is a hard stop at 7T. Since revenue (taxes) and expenditures are very separate things it could've been at 8T or say 11T but if it was at 11T we'd have a surplus and so this conversation would've never happened.
When you pass a bill requiring the president to do something there is no requirement to justify how anything the bill will be paid for.
Similarly, you can pass a bill adjusting the tax code without explaining where the additional revenue will go to or in the case of a decrease what programs will be removed.
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Business works very similar to this as well. Divisions are given budgets to spend but those budgets aren't in lock-step with revenue.
It could well be that pretty much everyone outside the USA is reading that description - and indeed the rest of this thread - and thinking "sorry, but in this instance the US system is broken".
> Business works very similar to this as well. Divisions are given budgets to spend but those budgets aren't in lock-step with revenue.
Umm, if revenue falls during a financial period, would corporate budgets not be adjusted? A division claiming "you handed us the budget, we're damn well going to spend it to the last cent, up to the CFO to figure out how to finance it" isn't exactly best practice.
Do they have to do it like that, or is that just how it's done?
How about in parallel with the budget they also discuss the debt ceiling? Get the finance in place, then agree how to spend what money they've agreed they can raise? Apologies in advance if that suggestion is completely ignorant and/or completely crazy :)
A note on how Congress works for those who are not from the US: Congress, specifically the House of Representatives, has "the power of the purse", meaning that they alone have the ability to create laws that require spending money. The Senate--the other half of Congress--must also pass those bills before they are signed into law by the President, but cannot originate them. The Senate can modify them with the approval of the House, in process known as "reconciliation".
Once a bill is signed into law, the Executive Branch, headed by the President, is required to initiate (or continue) the program defined by the law, and to direct the Treasury pay the bills for that program. Neither the President nor the Treasury has the option to just ignore the parameters of the law that has been passed.
Because the CBO estimates are just that, sometimes the spending required to run the program exceeds the estimated budget, simply because the CBO cannot foresee every circumstance (war, global pandemic, inflation, etc.) In that case, the Executive and the Treasury are still required to continue to run and pay for those programs.
When the Treasure runs out of money to pay for the programs that Congress passed, it must borrow money. The amount of money that it can borrow is defined as the "debt ceiling". Once the Treasury exceeds the Debt Ceiling, Congress must authorize more money so that the Treasury can continue to pay for all of the programs that Congress has passed into law.
When Congress says they won't raise the debt ceiling they are saying "We are not willing to let the Treasury borrow money to pay for the things we told the Executive branch that they must do." But the Executive branch didn't pass the laws, Congress did. The laws that require money to be borrowed may have been passed last year, or decades ago.
If Congress really wishes to control spending (which is what is claimed as the reason not to raise the debt ceiling), then they can do so by not passing bills that require spending more money, since they are in sole control of what the Executive branch can spend money on. Which is why the debt ceiling debate is completely artificial, and not a "just in time" function. Rather it is the current Congress basically saying that they didn't like the spending passed by either themselves or previous Congresses, and they want to retroactively change the laws, and they wish to do so without having to go through the process of actually creating the laws, debating them, and passing them--usually because the spending they really disagree with is wildly popular and would not likely survive the regular legislative process.
When Congress passes a bill for anything that requires spending, the time to debate that spending is before the bill is passed. Once that bill passes and is signed into law, then US government is now responsible to cover that cost.
The debate about the debt ceiling is all about one party saying that they don't want to pay for the spending that has already been debated, approved, and signed into law. This is akin to going to an expensive restaurant, ordering the food, enjoying dinner, and then when the bill arrives, saying "Oh, I won't spend that much on dinner!". That's not the way the world works. If you can't afford the food, the time to make that decision is when you are making your restaurant choice, or when you are ordering, not after the bill arrives.
Amazingly, the government is structured differently than your family's finances! I'm all for fiscal responsibility and would love to see the US slash it's corporate welfare budget, but the government is not a family and shouldn't be run like one.
Outside of privacy-invading legislature (or corporate legislature), both sides of the aisle fail to agree or compromise on working for the people.
When there’s an opportunity to use leverage, it makes sense to use it. But it’s like MAD concept, they’re not going to actually let the US default. It’s not in either party’s self interest.
Switch the roles, and there are cases where democratic controlled X has halted something when there’s a republican president. It’s the nature of the game.
To say one party does this but the other is absolved of sin, I feel, is playing into the hands of blissful ignorance. I’d like to believe one side has my back, but they don’t. I can name maybe 4 senators that come off as authentic, and have a track record that shows it.
But we're not talking about just "something", we're talking about paying the bills that have already been authorized.
Can you provide some examples of Democratic controlled "X" threatening to default on the debt to achieve a policy goal?
If you're going to play "both side-ism", you should provide some examples. I can't remember Democrats doing things equivalent to holding an economic gun to America's head.
At the very minimum, you may see decades of interest wiped by devaluation of currency (a good question is "compared to what", but that's another story). FDIC becomes seriously unbacked in this case.
Although the debt limit thing is a risk, there’s no practical or financial reason why the US would ever default on its bond payments, but the debt limit brinkmanship creates a potential to default due to politics (for no real reason).
Fitch isn’t the primary rating agency, the downgrade is fairly small, and this being about the USA, I don’t expect huge effects, though.
Bitcoin standard
I thought everything is compared to risk free rate which is the US treasury bill. I guess not so risk free anymore.