[tomder55]

Fitch Ratings downgraded the U.S. government's credit rating from AAA to AA+ yesterday .This is a signal to investors that America's Treasury bonds are not as safe a purchase as they had been. Practically what it means is that the US will have to offer higher yields to attract buyers .

The scary part about it is that they may actually be over rating America's bonds. Here is the reason Fitch gives for the downgrade

The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.

Fitch Downgrades the United States' Long-Term Ratings to 'AA+' from 'AAA'; Outlook Stable (fitchratings.com)

I don't agree with their comments about the debt limit . The only time we see any fiscal restraint is when the threat of a shut down is approaching .

They are right about the unserious attitude of our leaders about the economy .They complain about tax cuts ;spending initiatives and not addressing long term "challenges " in funding SS and Medicare costs .

They have been patient . S&P and Moody's dropped our ratings 2011.

They correctly observe that it will take more revenue to service the government debt.
The interest-to-revenue ratio is expected to reach 10% by 2025 (compared to 2.8% for the 'AA' median and 1% for the 'AAA' median) due to the higher debt level as well as sustained higher interest rates compared with pre-pandemic levels.

They say the current debt to GDP ration is 112.9% this year it is still well above the pre-pandemic 2019 level of 100.1%. The GG debt-to-GDP ratio is projected to rise over the forecast period, reaching118.4% by 2025

The debt ratio is over two-and-a-half times higher than the 'AAA' median of 39.3% of GDP and 'AA' median of 44.7%[of GDP. Fitch's longer-term projections forecast additional debt/GDP rises, increasing the vulnerability of the U.S. fiscal position to future economic shocks.

What is really scary is that there has been economic growth. When that happens the deficit is supposed to shrink ;not grow. .What that tells you is that government revenue is not keeping up with government spending.

The idiot running Treasury was critical of the downgrade . Janet Yellen said that things have improved under Clueless Joe. She used the Infrastructure bill and other investments as her proof ....clearly ignoring the one of the reasons for the downgrade was run away spending.

I watch my credit rating rise and fall based on how much debt I have. It is economic ignorance to suggest that adding debt is a recommendation for higher ratings.

We have an election coming in a little over a year. Who among the candidates is making our ballooning debt an issue ? Neither Clueless or Trump are that's for sure. Trump in his time in office was a big spender and I doubt he would change. Both of them show no interest in addressing long term solvency of entitlements .

There is one thing that keeps our ratings as high as they have been , That is due to the dollar being the reserve currency .I am not sure that position will hold much longer .

Rise of BRICS Currency: Shift Away from Dollar as Default | Fortune

Fitch's warning is a call for better political leadership. Unfortunately I believe it will fall on deaf ears .

[jlisenbe]

The golden age of spending for pols will be coming to an end. The concept of ever-increasing spending carried on with no correspondiyng increase in taxes is every dishonest pol's dream. They can make the stupid, clueless voters happy by providing cake rather than bread, and all funded with imaginary money. If we cared at all about our children and grandchildren, we would not allow this. I remember pointing this out to one former poster here, and he responded by saying that all generations had to face challenges, and so recovering from this disaster would be the challenge his children's generation had to face. How can you respond to such lunacy? This is where we are.

I reposted part of your post, Tom, on Facebook. It will get the usual five or six "likes" with perhaps a comment or two. It just doesn't rank up there with really important items such as college football or memories from fifty years ago.

[tomder55]

It just doesn't rank up there with really important items such as college football or memories from fifty years ago.

The Presidents

GW Bush Thought it was fine to bust the budget to pay for GWOT

The emperor thought the budget increases were fine . He just wanted the rich to pay for his plans

Trump's policies were do nothing to touch Social Security . He cut taxes without cutting the budget

Clueless adopted the Bernie Sanders government gimmee agenda

To his credit ,Bubba worked with Newt to at least bring the budget into balance (without addressing the ballooning debt) .

Congress has been irresponsible even longer . Everyone pays lip service to budget reform . But the real problem is that even when Congress sets rules; they don't follow them.

Flashback 1974 Congress passes the 'Congressional Budget and Impoundment Control Act '(coincidently the year Cluless Joe is elected to the Senate) . This set rules about discretionary spending . Back then most of the budget was discretionary . Today only 27% is and the rest is mandatory spending on entitlements .


Since then there have been only 4 times in 49 years that Congress has passed a budget on time. Every other spending act has been in violation of Congressional rules. To get budgets passed they waived budget points of order, circumvented spending caps and use budget reconciliation to bypass the process. They delay and delay and chaotically pass a last minute spending resolution to avoid a shut down. Fitch noted that in their reason for the downgrade.

Would a budget reform solve the problem ? The deck is stacked . Congress self enforces .Rules are void if not followed . Is a 65 mile speed limit really a 65 mile speed limit if there are no cops on the road and everyone is driving 75 ? It is like a game of football without referees .

For reform to work Congress will need to create an enforcement mechanism that they can't bypass . Good luck with that . The people have to be informed and involved . Good luck with that The 1974 budget act is a 50 year old memory and the only reason that even passed was because Congress hated Nixon so much that they for a brief moment in time decided to do their jobs.

[jlisenbe]

Newt was the last hero of budgetary restraint. He rode into town on the strength of a landslide election where the repubs gained 54 seats in the House and 9 in the Senate, all due, at least in some measure, to the Contract with America election strategy. The election result was so dramatic that BC didn't care to push the issue and was thus buffaloed into spending restraints. His final two or three years had budget surpluses which Bush then stupidly abandoned. Since that time, no person of true courage has come on the scene. Trump was a huge disappointment for me. His first two years were set to make genuine reforms in spending. He instead took the irresponsible route of reducing taxes while increasing spending.

Of all the current candidates, only VR seems to have the nerve to get the budget under control.

[tomder55]

Of all the current candidates, only VR seems to have the nerve to get the budget under control.

And he is upfront on how he will budget cut ;although he still would need the cooperation of Congress to fully reform the system.

[tomder55]

Liz Peek is the best economic commentator out there today. Here is her take on the Fisk downgrade .

Fitch smacks Biden for out-of-control spending | The Hill

[jlisenbe]

Stocks slumped in response to the move, as did whatever hope Biden might still have that he can sell the public on the virtues of Bidenomics. Presiding over the second-ever downgrade of U.S. debt is not a terrific selling point for any White House, and especially one widely criticized for spending too much money and kicking off the highest inflation in 40 years.

That might be overly optimistic. With the ever-compliant national media colluding to bury these stories ala Hunter Biden's laptop, then it will be up to the repubs to make sure the electorate is repeatedly made aware of it, and I don't have much confidence they will do that.

[tomder55]

The Great Professor Victor Davis Hanson wrote today;

Modern monetary theory proved that annual deficits and national debt are just a state accounting challenge. So printing more money is an act that properly diminishes the value of existing capital improperly horded by parasitic profiteers. Spreading the ensuing cash wealth to the more deserving and victimized is long overdue social justice.
At any time, the national “debt” can be deconstructed by renouncing usurious bond obligations, appropriating private retirement accounts, or further inflating the currency—if governments are committed enough to social justice.

The Remaking of America › American Greatness (amgreatness.com)


This is one of the 10 radical changes he identifies in his op-ed today.

[tomder55]

The world is bananas . International Monetary Fund economist Serkan Arslanalp and University of California, Berkeley, professor Barry Eichengreen have a 25 page sobering thesis that argues for a number of reasons that although debt reduction is desirable ;it likely wont happen.
This is not just a US problem but a worldwide one.

JH_Paper_Eichengreen.pdf (kansascityfed.org)

In summary:
Global debt ratios have increased, on average, from 40% to 60% of GDP since the 2008 financial crisis. The jump has been even larger for wealthy nations, to nearly 85% of GDP on average. Contributing factors were unwise bank bailouts, zero interest rates , slow economic growth ,foolish budget deficits and the response to covid

The US alone will be close to 100% ratio of Federal Debt to GDP.(this doesn't factor in state debt levels that when push comes to shove will be another Federal bailout)
The CBO expects the ratio to balloon well above 100 % in the coming decades.
The only thing that helps the US is that investing in US debt is still relatively safe.
What happens if the world decouples from dollar dominance ? That is why I was watching with concern the BRICS meeting .

Aging populations mean governments must spend more on health care and pensions. We already know both Medicare and Social Security are basket cases on the verge of default.

Governments are hell bent on instituting the green new steal This they see as their Roosevelt like works projects . It is discouraging seeing so many free nations thinking it ok to use communist command and control economic policies

Governments must increase interest rates more than they realize which means that debt service will take up a higher percentage of tax revenue .The alternative of inflating away the debt is not viable.

Political polarization means that long term economic planning doesn't happen.

One solution would be an economic growth policy . But the authors caution that both the IMF and the World Bank are projecting slower growth in the future.

For one thing, depopulation will hinder growth as demand will be weakened .

[jlisenbe]

The US alone will be close to 100% ratio of Federal Debt to GDP

GDP for 2022 was 25 tril. Debt is well over 32 tril. How does that equate to merely being "close to 100%"?

[tomder55]

I just went by the author's comments

10. ConclusionPublic debts have risen for reasons both good and bad, good in that governments havefinanced needed responses to macroeconomic, financial and public-health emergencies, bad inthat they have borrowed imprudently and failed to retire debt in good times. The result has been increases in debt ratios worldwide, on average from 40 to 60 percent of GDP since the Global Financial Crisis.73 In advanced countries, debt ratios have risen still higher, to nearly 85 percent of GDP on average. In the United States, federal government debt in the hands of the public is approaching 100 percent of GDP. In other advanced economies, debt ratios are even higher.

[jlisenbe]

I've seen that figure of around 100% in a number of other places. I don't see how they make it work, but at any rate it seems to me to be the wrong comparison. It would be better to express it as a percentage of annual tax revenues which was about 4.4 tril in 2022. That would make the federal debt at about 750% of tax revenues.

[tomder55]

What really blows me away is how comfortable our leaders are with this reality .

[jlisenbe]

Far worse than that is how comfortable the voting public is with it. That's probably largely due to the fact that the mainstream media has basically nothing to say about it. I don't recall a single question being asked about it at the repub debate. It's like having cancer, but when you go to your doctor he never mentions it, so you just assume it must be no big deal.

[Wondergirl]

It's like having cancer, but when you go to your doctor he never mentions it, so you just assume it must be no big deal.

No, you find a new doctor.

[jlisenbe]

Metaphor, WG. Metaphor.

But if you are suggesting we need to find new pols and new news services, then I'm on board with that.

[Wondergirl]

Metaphor, WG. Metaphor.

But if you are suggesting we need to find new pols and new news services, then I'm on board with that.

Yes, metaphor. In the same vein, you find a different political party, new new services.

[jlisenbe]

Therein lies the problem. To balance the budget is going to be a painful process involving enormous budget cuts. The American voter doesn't want to hear such things, so we are stuck with no choice. Trump had the opportunity and blew it. Biden has taken the patient's cancer and doubled its size.

[tomder55]

I am convinced that the US and the rest of the world will elect benevolent dictatorships .

[jlisenbe]

I am convinced that the US and the rest of the world will elect benevolent dictatorships .

I think you are exactly correct. Freedom has become so devalued that people frequently don't even consider it.