Did they also move the doomsday clock hand another second closer?
Boring!
The US government’s willingness to run huge deficits (which increases the national debt) is what makes it so powerful and holds so much sway over the developing world in the first place.
Remember, that you cannot run large budget deficits is a neoclassical myth designed to keep the rest of the world from investing in self-sufficiency, and must therefore earn export revenues (by using their labor and resources to sell cheap goods and services to the wealthy countries) first before they can invest in their own country in order to “keep their deficits down”.
US federal debt = dollars spent by the US government that haven’t been taxed back yet. It literally is just an accounting tool to drain the extra reserves creating in the financial system every time the government spends money.
This MMT meme should clarify everything:
Leftists really need to understand that they should attack the federal government for prioritizing its spending on rich people, and not enough on the average working people, instead of regurgitating neoliberal myths that perpetuate the US hegemony.
Most comprehensible leftist meme
Leftists really need to understand that they should attack the federal government for prioritizing its spending on rich people, and not enough on the average working people, instead of regurgitating neoliberal myths that perpetuate the US hegemony.
I agree 100% but whenever I suggest that leftists should bother to learn a bit about MMT I get told that it’s all irrelevant because it doesn’t align perfectly with their own interpretation of something Marx said about money or value, or only applies to when you’re very late stages of socialism.
Funny considering that perhaps the greatest economic development that has occurred in the history of humanity, happened in the USSR under Stalin’s Five-Year Plans (1929-1955) that ran very much on the MMT principles (not exactly, but conceptually similar enough). No other socialist/Marxist economies, including China which is far more neoliberal post-reform and relied on foreign capital and cheap labor, ever comes close to achieving this.
100%. I do wish a Marxian economist who also understands MMT (and there are at least a few) would do a deep dive into the details of the Stalin’s Five Year plans, I think it’s a fertile area for understand how to run an economy in the early stages of socialist transition.
There’s a Proles Pod episode on MMT just came out that seems to do a good job. I still can’t 100% wrap my head around it but I’m getting there
Not understanding how to run a country at a deficit is why I’m no good at Victoria 3.
It depends… during the gold standard era (fixed exchange rate) you cannot run a large deficit without screwing up your own exchange rate.
I will continue my BDS America campaign and discourage purchasing of US toxic debt and weapons.
The debt are bought by banks because every time the government spends (creates new money), it also creates reserves in the banking system. The banks then use the new reserves to buy treasuries, which act to drain excess reserves in the system (because of interest rate targeting, otherwise you can just let the reserves build up in the system without doing anything, and not issuing new treasury bonds at all. It is a policy choice.).
The rest of it is bought by citizens and non-citizens alike who have accumulated dollars but don’t know where else to spend them (e.g. foreign central banks). Therefore the treasury bonds also act to drain the excess dollars the US has spent overseas (dollar recycling).
The only real way for the US to lose its financial hegemony is if there is another country (you know who) willing to step up and become the net deficit spending country to absorb all the surplus export capacities in the world.
Otherwise exporting economies will always have surplus goods to sell and the trade flow will inevitably lead the goods to be sold to the country willing to run a deficit. If not, workers will lose their jobs and hurt the local economy of the exporting country.
The real problem is that the government directing spending goes directly against neoliberal orthodoxy
instead of regurgitating neoliberal myths that perpetuate the US hegemony.
One way to do this is to point out what would happen if someone “called our debts.” Let’s say the US actually owes this money to various investors. Americans are going to have much worse problems before this happens, if it were to happen. Nobody cashes out unless they think the country is collapsing. And not in the “Oh no a recession that makes 2008 look like the 1950s!” but in the “People are being disappear’d and there’s gunfights between militia groups over water,” type of collapse.
At which point, whatever the debt is doesn’t matter because it would be the end of the US federal government. People would only call those debts because they know they aren’t going to get a return on their investment. USD will be worth fuck-all.
Regardless, it’s mostly money the US government owes itself. And decision makers are aware the debt doesn’t actually need to be paid back. The whole thing is a sham made up to justify austerity and imperialism.
These systems always make me laugh.
China gets an A1 which is lower than Hong Kong and Taiwan which both get an Aa3, the implication being that these places are better equipped to pay their debts than the mainland? Fuck off are they lol.
i mean giving china a lower credit rating makes sense though since they can and will just tell foreign investors to get fucked (as they should, lol) if necessary (this is a good thing tho)
the US will sanction Moody’s🤣
better cut everything but the military that will do uhhhh nothing
SNAP $200
PBS/NPR $150
Border Patrol $800
Military $3,600,000,000,000
Medicare $150
someone who is good at the economy please help me budget this. my credit rating is dying
just use your military to shoot the credit raters, why didn’t anyone else think of this??
I have no doubt Trump is having people look into some way to tariff individual companies and people. But if that fails, there is always ICE and CECOT.
Spend less on military
No
Hmmm… have you tried spending more on the military?
you gotta run the govt budget like a household. no wait, not like that!
Quick permanently another 500 billon to the defense budget!
Remember when the credit agencies were giving high ratings to all the over leveraged banks in the lead up to the Great Recession? Good times, good times.
Now it’s over leveraged private equity funds. Lookup blackstone
Watch the market still go up
The market is already a bit jumpy from the UNH wipeout. The crash may be closer than we think.
I fucking hope so. I’ve got a decent amount SQQQ just biding my time.
deleted by creator
I literally keep thinking itd be stupid not to buy United healthcare stock just because like, every other fucking time something like this has happened it just keeps increasing in value anyway, the only people who lose are the people who hear the bad news and go SHIT I GOTTA SELL
We’re gonna be winning so much you’ll beg me to make it stop!
“Hell yeah, brother!”makes the winning stop
The debt is sustainable, no sovereign currency debt is unsustainable, the U.S. Government can at any time can buy back all the debt from willing sellers and give them U.S. Dollars, this merely replaces U.S. Treasuries with U.S. Dollars (in form of bank reserves), both liabilities of the U.S. Government.
Moodys could downgrade because there have been whispers of U.S. Govt changing duration and interest on existing debt (very stupid) owned by foreigners, which is a form of voluntary debt. Sovereign debt does have voluntary default risk, but no involuntary default risk. But they aren’t saying that, they are saying the debt itself is ‘unsustainable’ which isn’t true.
They could argue they are downgrading because of risk of inflation being above interest rate or exchange rate depreciation. But that is not the same as credit risk, they are saying ‘credit risk’ not ‘exchange rate risk’.
Dollar’s global reserve status and monetary sovereignty grant unique advantages, dismissing debt sustainability concerns oversimplifies the risks. Yes, the US can theoretically print dollars to service debt, but this ignores practical constraints. While the US won’t run out of money, unchecked debt could trigger stagflation, a dollar crisis, or a loss of geopolitical leverage. These outcomes are far messier than a technical default.
Unlimited QE or devaluation erodes the dollar’s purchasing power and credibility. Investors may tolerate deficits until they don’t as was seen with the 1970s stagflation spiral, when the dollar’s dominance didn’t prevent a crisis of confidence. If markets anticipate perpetual devaluation, demand for treasuries could collapse, forcing interest rates up and destabilizing the economy.
While Moody’s critique conflates the exchange rate and credit risk, they’re still connected. A weakening dollar makes dollar-denominated debt cheaper for the US to service, but foreign holders like Japan face losses. If they dump Treasuries to cut losses, the fed would have to monetize debt at scale, risking hyperinflation. This would be a de facto default for foreign investors. If the US unilaterally alters debt terms extending maturities or capping rates, that also signals unreliability. Foreign creditors, who hold 30% of US debt, could exit, triggering a liquidity crisis.
Unlimited QE or devaluation erodes the dollar’s purchasing power and credibility.
This isn’t necessarily true. As I said, bond purchases isn’t money printing but rather an asset swap, swapping one asset, treasuries, with reserves, it doesn’t create net financial assets. That’s what fiscal policy does.
While the US won’t run out of money, unchecked debt could trigger stagflation, a dollar crisis, or a loss of geopolitical leverage.
No it won’t. Private debt isn’t same as public debt, what I said applies to all countries with sovereign currencies, look at Japan’s public debt to GDP ratio. The 1970s stagflation was in large part due to oil price shock and capitalists/workers fighting over real output.
Credit ratings agencies have downgraded JGBs many times in the past yet yields remained low and demand for these assets high. 1 2 3 4
Another good example was Italy, before they joined EMU Euro. Credit ratings agencies downgraded Italian Lira debt because ’ fiscal trajectory’, ‘Unsustainable path’ yet they never defaulted on Lira debt. This was despite low growth, and high(er) inflation. There was no risk of default in the first place.
While Moody’s critique conflates the exchange rate and credit risk, they’re still connected. A weakening dollar makes dollar-denominated debt cheaper for the US to service, but foreign holders like Japan face losses.
U.S. sovereign debt can always be serviced, as I said, it’s not really debt. It is debt in the same way cash in your wallet is debt, except that there is interest, which is a basic income to bondholders.
If markets anticipate perpetual devaluation, demand for treasuries could collapse, forcing interest rates up and destabilizing the economy.
It won’t, short term rates are set by the Fed, and if the interest rate goes beyond its tolerance it has to soak up excess debt to maintain its target rate. Demand for treasuries will always be there because even if foreigners don’t want it, Americans do as it is a risk-free asset.
If they dump Treasuries to cut losses, the fed would have to monetize debt at scale, risking hyperinflation.
No, if they dump Treasuries, they lose their foreign exchange reserves and as the exchange rate depreciates, they’ll get less and less of whatever other currency they are trying to buy. The reason why Chinese and Japanese central banks have reserves in the first place is because they buy up excess Dollars in the forex market so as to maintain trade competitiveness (real effective exchange rate).
If the US unilaterally alters debt terms extending maturities or capping rates, that also signals unreliability.
That is an actual voluntary default. Not the same as exchange rate risks.
Foreign creditors, who hold 30% of US debt, could exit, triggering a liquidity crisis.
There won’t be a liquidity crisis, U.S. Govt is always there to supply liquidity if needed.
The key issue is with confidence. I’m not saying that QE can’t work in principle. Obviously a government can issue as much currency as it wants up to unlimited amount. The problem is with the way the US economy is structured around the dollar being the reserve.
It’s not about debt, it’s about perceived value of the dollar. If holding US bonds means you’re just losing money long term then you have no choice but to divest from US bonds.
Demand for treasuries will always be there because even if foreigners don’t want it, Americans do as it is a risk-free asset.
That, once again, relies on the confidence that holding treasuries will actually be risk-free in the long run. Furthermore, the US is not a self sufficient economy, and it needs to import goods for the economy to function. If the value of the dollar continues to fall relative to other currencies, as it is right now, then costs of imports go up.
There won’t be a liquidity crisis, U.S. Govt is always there to supply liquidity if needed.
Again, there will be direct negative consequences of the US government doing that. It would be a huge market shock.
That, once again, relies on the confidence that holding treasuries will actually be risk-free in the long run.
As long as Americans have to pay debts (public or private), and the debts are enforced, they will want Dollars, and the only risk free interest bearing Dollar assets are Treasuries. Also keep in mind that people have to give their (existing) Dollars in form of bank reserves mostly to get Treasuries.
This credit rating nonsense has happened before too. Also see. Nothing happens. In a week everyone will forget.
If the value of the dollar continues to fall relative to other currencies, as it is right now, then costs of imports go up.
True, but that will happen long term. Not instantly, and there will be adjustment in living standards in the U.S., also depends on the willingness of China and others to accumulate US Dollar assets.
Again, there will be direct negative consequences of the US government doing that. It would be a huge market shock.
No there won’t be, look at 2008 or 2020. Federal Government has successfully backstopped private financial assets many times. Is this good? No, but it’s (mainly) because private sector messed up.
Again, I’m not saying the credit rating itself will have any impact long term. What I’m saying is that it signifies continued loss of confidence in the US economy by global investors. It’s pretty clear that China is dumping treasuries at a record rate, and has already dropped below UK in terms of holdings. Meanwhile, the BRICS are actively working on doing trade outside the dollar which will obviously have an impact on the status of the dollar going forward as well.
No there won’t be, look at 2008 or 2020. Federal Government has successfully backstopped private financial assets many times. Is this good? No, but it’s (mainly) because private sector messed up.
The impact of 2008 and 2020 was that millions of people lost all their savings. Each time a crash happens, the working majority ends up on ever thinner margins and less able to withstand the next crash. The US is primarily a consumer economy, and consumption continues to drop because people can’t afford to make ends meet. US consumers have accumulated $74 billion in new credit card debt last year, while defaults surged to levels unseen since the 2008 recession. Over half of US households now rely on credit to purchase essentials like groceries, exposing the collapse of wage growth against inflation. Unsurprisingly, consumer sentiment has cratered to its second-lowest level since record-keeping began in 1952. These pressures culminated in an official GDP contraction during the first quarter of 2024, confirming recessionary conditions.
The collapse in spending leads to a classic capitalist crisis of overproduction that feeds into itself. And if US consumption drops, then its main appeal as a global trading partner evaporates as well. Which will necessarily lead countries to continue devesting from US.
I look forward to the NYSE hitting record highs on Monday on news of the US economy shitting the bed.
If the debt’s too high, that means rich people will have to pay more taxes because they’re the ones with money right?
If anyone else is confused it was Standard & Poor’s that downgraded their rating during Obummer, not Moody’s
Poor Mood
This doesn’t really mean anything does it
In practical terms it means that higher percentage of the budget will be allocated to paying interest leaving a smaller operational budget for productive uses.
Oh okay
