There is a ton of low-hanging fruit that could lower the debt that would result in little to no austerity. Carried interest/corporate tax avoidance, means-test social security, remove needless subsidies for fossil fuels or corn/sugar that add to health costs, or eliminate PBM formularies and enable medicare drug negotiation and fraud reduction. Maybe a few hundred billion right there.
Long term reforms to make education and healthcare outcomes focused, punishing administrative overhead and rewarding performance. Similarly defense could be massively downsized IMO to just expendable drones and submarine based nuclear deterrence, we don't need a 'triad' - one ballistic sub can basically end the world. Replace defense contracts with guaranteed purchase orders and let the private markets figure out how to do hypersonics or missile defense.
bayarearefugee · 2h ago
It makes much more sense to just raise the social security tax cap than to means-test it. Means testing social programs tends to just add needless bureaucracy to them while also weakening support for them by adding an us vs them line of who benefits.
Someone who makes 10 million dollars (or 100 million, or...) a year pays the exact same social security tax as someone who makes $176,100.
You don't even have to raise the cap by very much to fix every foreseeable funding issue Social Security has
don_neufeld · 1h ago
Yup.
Means testing is one of this things that fools people - it sounds good, but in practice is wildly bad at what it’s trying to do, and can be borderline evil.
Beyond the bureaucracy dimension - means testing puts up a barrier, not at the top, but everywhere.
Adding “one more thing” to people who are already struggling can be disproportionally difficult for them to meet, and therefore cause them to miss out on benefits they are completely entitled to.
Additionally, it can create incentives for behavior you would otherwise be completely pathological, such as divorcing your sick spouse because as a couple you don’t qualify for support, but individually they do.
cryptonector · 18m ago
> Someone who makes 10 million dollars (or 100 million, or...) a year pays the exact same social security tax as someone who makes $176,100.
Very few people earn that kind of money as taxable _income_. More people earn that kind of money as unrealized _capital gains_. Social security is paid for with a payroll tax and what amounts to an income tax. Once you're earning several times the cap you stop caring about it. If you earn 5x or 10x the cap then you will probably not be counting on social security, so there's no us-vs-them dynamic likely there. The problem is that to make this make a big different you'll have to hit hard those who earn only 1.5x or 2x the cap, and that's how you'd get an us-vs-them dynamic.
Instead you can increase the retirement age, increase the cap, increase the tax rates, lower the COLAs, etc., and that's what we've seen so far.
credit_guy · 57m ago
> Someone who makes 10 million dollars (or 100 million, or...) a year pays the exact same social security tax as someone who makes $176,100.
You say this as it's some sort of injustice. But the guy who makes 10 million will collect the same benefit in retirement as the guy who makes $176,100. Or are you proposing that the guy who make $10 MM should pay more, but get their benefit capped? Because if that's what you are proposing, I don't see how that is just or fair. Except maybe following the argument along the lines "screw the rich, they can afford it".
margalabargala · 36m ago
Social security is not a pension. It's more like insurance. It is designed to make life as a senior more equitable, not to stoke the egos of the wealthiest by ensuring they do not feel slighted by payments scaling to be larger than benefits above some certain income level.
It is absolutely a "fair" and "just" thing for a society to do to itself.
fkfyshroglk · 3h ago
Social security is self-funded. It has literally no impact on the deficit or our ability to pay off debt. By statute.
Edit: i am flabbergasted at how low literacy is about how our government works.
JumpCrisscross · 2h ago
> Social security is self-funded. It has literally no impact on the deficit or our ability to pay off debt
Technically, yes. Practically, it’s a pair of income and expense streams. Slashing social security payouts to pay for some nonsense is tempting.
fkfyshroglk · 2h ago
Sure, practically I can also rob people at gunpoint.
JumpCrisscross · 30m ago
Material difference when we’re discussing what a legislative body would and would not do!
My guess is we’ll stick it to Gen X.
fkfyshroglk · 3m ago
Maybe you're right. But then I'll be telling anyone who will listen that they're being sold up the river to finance the military and the wealthy against all reason.
siliconc0w · 2h ago
It's actually not, most retirees receive more in benefits than they've contributed.
fkfyshroglk · 2h ago
How does that contradict anything I said?
If you have issues with what it is, that's fine. But it still doesn't impact our deficit or ability to pay off debt.
djoldman · 2h ago
? Self-funded to me means an entity or process that itself takes in income sufficient to fund all of its operations.
Social security itself does not take in any income whatsoever.
Social security is a debt. Therefore it itself directly affects the US' ability to pay off it's debts.
fkfyshroglk · 2h ago
Social security is funded with a social security tax. 6% of your paycheck is paid by you, 6% by your employer. (Or 12% by you if you are self-employed.)That by law can only go to fund social security and nothing else. Similarly, the fund is by statute guaranteed to only fund social security payments. It is completely separate from the rest of the federal budget.
ethbr1 · 29s ago
> That by law can only go to fund social security and nothing else.
Eh, that's partly true. The true statement is that money must eventually go to fund social security.
Before it's needed (i.e. when tax revenue exceeds benefits), it has been used to buy US treasuries -- the funds used to do so then appeared for Congress' general use.
Ok, let's chalk the "self-funded" part up to semantics.
> It has literally no impact on the deficit or our ability to pay off debt. By statute.
This however is wrong.
As a simple proof: let's just up social security payments by 3000x... social security is still "self-funded" and "separate" but that would be an untenable debt and the US would immediately default on that obligation. The amount and structure of social security debt matters to the US' ability to pay.
Social security is a promise to pay an amount of money in the future and it is backed by the "full faith and credit" of the US government. The bigger it is, the bigger the debt, the hard it is to pay off. It's a big impact.
Just because it's specifically funded and tied to a precise specific tax does not make it immune from debt considerations.
fkfyshroglk · 6m ago
Social security payments are not debt. They are calculated on the ability to pay out of the current fund. It would be illegal to raise payments by 3000x.
Could that happen? Sure. But that would inherently involve destruction of the instituition as we refer to it today.
gruez · 2h ago
Maybe for now, but it's eventually going to run out of money, and what do you think is going to happen? You think all current and future retirees are just going to shrug and say "oh well, it was good while it was lasted", and not lobby their politicians?
It will have depleted it's reserves in approximately 10 years. Expenditures exceed revenue, but only by about 15-20% by then. So either there's going to be a cut in benefits and/or the retirement age will be bumped up, just like we did in 1983[1], and as originally intended when designed. Most likely the latter, but it seems legislators are too chicken to do it until their backs are up against the wall. And conservative legislatures are probably content to wait until it's an exigent crisis to maximize their chance at selling privatization.
[1] We only recently just reached the tail-end of the 1983 reforms' gradual shift in retirement age.
fkfyshroglk · 5m ago
This is correct, thank you.
thunky · 2h ago
> So either there's going to be a cut in benefits and/or the retirement age will be bumped up
Or...raise the contribution limit which fixes the whole thing easily without having to screw over the people that paid in and just want to get back what they were promised.
Raise the retirement age? Really? All this advancement to make our lives better and more efficient, and we're going to conclude that we all need to to work more?
And meanwhile we can piss away cash by the trillion but when it comes to social security suddenly there's no money to be found anywhere.
They've fooled everyone into believing "the fund will be depleted" in x years. Then put some more money in assholes.
fkfyshroglk · 2h ago
No, the SURPLUS will run out. The fund will not.
kryogen1c · 2h ago
This is a silly argument. It's like saying if you can pay 95% of your mortgage, you can pay your mortgage. That's not really how it works.
fkfyshroglk · 14m ago
Social security isn't analogous to a mortgage. It's a rolling payout to the current population.
gruez · 2h ago
From wikipedia:
>Without legislative changes, trust fund reserves are projected to be depleted in 2033 for the OASI fund.[16] Should depletion occur, incoming payroll tax and other revenue would be sufficient to pay 77 percent of OASI benefits starting in 2035.
fkfyshroglk · 2h ago
Paying out 77% of benefits is not the same as running out of funds. You are still guaranteed payments while anyone in this country is making income.
csense · 1h ago
The problem with means-testing Social Security is that the government's promised some people "Social Security will be there for you" when they were in their 20's and 30's, and now you're taking it away in their 50's or 60's, when they can't go back and adjust life / retirement plans that were made taking into account "SS will be there for you."
In my humble opinion, this kind of broken promise borders on "the government defrauding the people".
It would be more legitimate to say "SS won't be there for you if you make too much" to those in their teens and 20's just entering the workforce -- but that won't have a major effect on cash outflow needed to satisfy SS obligations for 40-ish years (except for the small fraction of rich unfortunates who get SS because they become unable to work at a young age.)
You might also argue that the level of prying into people's finances implied by "means testing" is a form of illegitimate government overreach. If you believe this, in theory you should, for consistency, also believe that individual income tax ought to be eliminated (which many people consider a radical proposition).
madars · 47m ago
All those promises are "parchment guarantees", to use Madison's term. For example, social security distributions were promised to be tax exempt, and they were from the institution of the program in 1935 up until 1983 - talk about reliance interest!
FireBeyond · 1h ago
And presumably they’d take away my social security tax, too, right? If I was not going to get it? Right, right?
margalabargala · 25m ago
You don't see the problem with funding things like social security or food stamps purely from the people relying most on those services?
SllX · 3h ago
I like where your head is at on a lot of this and there's a ton of waste to cut within the military itself, but we don't want to scale it down that far. It's still good to be able to effectively put boots on the ground in other parts of the world and back them with the most effective logistics infrastructure in the world, not to mention we want deterrence options other than a nuclear holocaust.
gruez · 2h ago
> Maybe a few hundred billion right there.
Source that such reforms add up to this much? What do the reforms look like in concrete terms?
9283409232 · 1h ago
This is the biggest argument I have against DOGE. There are easy wins you could make when it comes to government spending and efficiency and they are doing none of it.
tzs · 3h ago
How would you propose to means-test Social Security?
ivewonyoung · 1h ago
By adding even more bureaucracy, current SSA administration overhead is already close to $15 billion year.
boroboro4 · 55s ago
Which is, checks notes, 1% of the social security budget. While not nothing it’s quite competitive given the scale and impact.
ajross · 3h ago
Really no. As much as deficit nuts want to grasp at this as a confirmation of priors, this is absolutely 100% not at all about "The Debt". (In point of fact outstanding[1] debt as a fraction of GDP isn't even all that large, historically; it was much higher in the 80's and literally every one of those bonds is now paid off!)
We could magically pay it off right now and the US would still look like a credit risk. It's all about trade policy right now, and the general existential risk that we blow it all up. The treasury rate spike in April (likely but inconclusively due to strategic dumping) continues to have everyone spooked, and fiscal restraint, tax policy, austerity, etc... don't speak to that concern at all.
[1] Corrected: service cost of the debt
jack_h · 2h ago
> In point of fact outstanding debt as a fraction of GDP isn't even all that large, historically; it was much higher in the 80's and literally every one of those bonds is now paid off!
This[1] shows in the 80s the total debt to GDP ratio started at 31% and ended at 51%. We are currently at about 122% according to the same chart. I'm not sure what numbers you're referring to, could you provide a source?
In terms of the bonds being paid off that's true, but they were paid off by selling even more bonds to cover new spending and old, i.e. total debt grew even if individual bonds matured.
>In point of fact outstanding debt as a fraction of GDP isn't even all that large, historically; it was much higher in the 80's and literally every one of those bonds is now paid off
I did indeed say that wrong, the nominal debt was lower but the cost to service it was much higher (borrowing in the 80's was done at interest rates into the double digits!):
Again, if the debtpocalypse didn't happen then it's clearly not happening now. This is simply not about fiscal policy. Period. It's about institutional trust in the government's ability to manage payments.
scoofy · 2h ago
The double digit rates were because of the inflation following the dollar being de-pegged from gold in 1971. It was easy to pay the massive interest rates because the point of the high rates was to bring inflation down. The idea was that people did not want to hold US debt exactly because the inflation was a de facto partial default.
ajross · 2h ago
I don't follow that economics. How does interest rates being high make bonds easier to pay? And how to I get some of that action, that sounds pretty magic to me. :)
(No, that's not correct. Borrowing in the 80's was more expensive. Period.)
scoofy · 1h ago
You’re mistaking rate vs outstanding debt.
If I have a $1M mortgage at 6%, and a $1000 credit card debt at 25%, which is harder for me to pay off, assuming I make $100K per year?
ajross · 49m ago
Click on the link. I assure you I am not.
efavdb · 1h ago
If it didn’t happen then it can’t happen now?
ajross · 1h ago
Paying off the debt is cheaper (significantly so) than it was then, and we had no trouble then. So yes, if it didn't happen then it won't happen now, at least not for the same reason. You can construct a double/triple-failure situation, sure, but any argument of the form "We can't sustain this level of financing" is simply wrong by counterexample. We already did.
awongh · 4h ago
For Moody's or any other agency, do they have any real insight on credit worthiness?
I would have just assumed that if you're another big financial institution you're doing your own research.
Is it that orgs below a certain size need these people to help tell them what's going on?
I would have also assumed anyone who holds an important amount of US treasuries does their own research and doesn't need to listen to any of these agencies?
What actual value do they provide? (esp. in light of the housing crisis proving they weren't providing any value at all?)
SOLAR_FIELDS · 4h ago
Indeed, these were the same people that were reporting A+ on junk bonds back then, weren't they? Why are they even still around?
Moody’s isn’t taking a radical position. They’re adjusting to a consensus position rather than being an outlier.
It’s no secret the USA fiscal path is unsustainable, the Fed has said the same.
JumpCrisscross · 2h ago
> these were the same people that were reporting A+ on junk bonds back then, weren't they?
Fun fact: those AAA securities paid out. We have obvious endogeneity issues with the bailouts. But the evidence is strong that even absent the bailouts, those senior tranches would pay out.
The problem was that most AAA securities are both highly solvent and high liquid. But these proved solvent but illiquid. That caused issues when their owners tried to dump them. But Moody’s rated solvency, not liquidity.
pinkmuffinere · 2h ago
Wow this is a fun fact, and you seem to have a lot of knowledge in this space! Where could I learn more about this?
aprilthird2021 · 3h ago
There's a huge trend here, and in general comment sections online, where if you made a mistake, even a catastrophic one, then as an organization you are useless.
Moody's has been in this game a long time, I'm sure they're not perfect, but also being wrong once doesn't mean you're always wrong.
Doesn't anyone here think the US recent economic instability merits a reduction in credit rating? We have a massive amount of debt (we borrowed to pay something like $800 billion in interest on our debt last year) and are essentially betting on our rocketship economy to offset our enormous debt in the future. The latest economic turmoil does cast a bit of doubt on that ability to pay off this huge debt later on no? I mean, isn't that a reasonable conclusion, regardless of whether you hate Moody's or think they are stupid?
awongh · 2h ago
I mean everyone has opinions, but isn't it actually verifiable that in aggregate Moody's gives accurate ratings (not just for US treasuries)? If not, why would anyone use them?
buckle8017 · 4h ago
They are indeed, Moody's ratings are Junk Ratings.
everybodyknows · 7m ago
[delayed]
djoldman · 2h ago
They are grandfathered in as an oligopoly because by law many large funds are prohibited from investing in securities below a certain credit rating.
Additionally, if you are on the other end (the one getting the rating), you pay the credit agencies for a rating so that buyers of debt will buy it. It's basically required that you have a rating if you want to issue debt.
It's a racket in some ways with a ton of bad incentives and inefficiency.
Kind of like a lot of things.
JumpCrisscross · 2h ago
> do they have any real insight on credit worthiness?
Yes. You can look at default rates by initial and proximate rating and see clear information.
> in light of the housing crisis proving they weren't providing any value at all?
Name me one AAA-rated security that defaulted. They were downgraded. They lost paper value. But to my knowledge, they didn’t default. (Those who held them did well [1].)
> What actual value do they provide? (esp. in light of the housing crisis proving they weren't providing any value at all?)
A significant amount of retail and institutional investment still use these ratings as a guiding indicator.
Not everyone does due diligence. If you have ever worked for a corporation, you know that they love cutting corners. And one corner they'd happily cut is time on due diligence - even if it causes a crash later on. It is not a problem for this quarter.
awongh · 2h ago
Another way to ask the question is how wrong would they have to get it before people stopped relying on them?
The interesting aspect to me is that they are not a government department- they make these ratings as part of a profitable business model. It's not like they keep chugging along no matter what.
It just seemed like that during the housing crisis the businesses seen to be putting their "ok" stamp on everything would have been the first to go down.
akoboldfrying · 2h ago
>Not everyone does due diligence.
I don't think it makes sense for every single person or company considering investing in Company XYZ to do their own, separate due diligence on XYZ. The information they each would uncover is the same.
It's a lot more efficient to pay a ratings agency to rate XYZ once. The tricky part is getting the incentives right so that the ratings the ratings agency produces are accurate. (There already is a reputational risk incentive pushing towards doing this the right way, but as we saw in 2008, there are other incentives pushing the other way, and they might often be stronger.)
kortilla · 3h ago
Who though? Institutional would never defer to just these agencies
mint2 · 3h ago
There’s actually a ton of places that rely on those ratings - like insurance companies need at least a certain rating in order to write in certain states.
scoofy · 2h ago
The two theories that are competing right now are the:
* Dollar "Milkshake" Theory: the dollar (and treasuries) are so in demand that it kind of doesn't matter how far into debt we go, because the point is that treasuries are mostly used for financial collateral, not for earning interest payments. So whenever there is a crisis, there will be a rush to the dollar, not away from it.
* Traditional Fixed Income valuation: that fixed income buyers care about real returns, and will penalize nations that get themselves into situations where they must either default in actuality, by refusing to pay their debts, or by effectively defaulting (in real terms) by inflating their currencies to the point of writing off their debts.
I understand the argument from both perspectives, and I understand that politics can easily lead to defaults that don't technically need to happen. I still have no idea which of these two theories will prove more accurate going forward. I generally consider myself pretty fiscally conservative, so I tend to lean toward traditional theories of fixed income.
thomassmith65 · 1h ago
White House communications director Steven Cheung reacted to the downgrade via a social media post, singling out Moody's economist, Mark Zandi, for criticism. He called Zandi a political opponent of Trump.
The elephant in the room is that the US had been operating as the chief architect and manager of the global economy for the last 80 years, a role that made it the wealthiest and most powerful and most technologically advanced nation on the planet. Under Trump the US has voluntarily relinquished that role, and we're seeing lots of these little adjustments as the system flails as it adapts to it's previously steadfast leadership contorting erratically. But the real damage done isn't about credit ratings or trade agreements or Trump's ridiculous kidding-not-kidding tariffs. It's about a different power settling into the role as the indispensable trading nation, and one that prides itself on its stability and unopinionated economic cooperation. In other words, we're hosed.
mmastrac · 3h ago
Tragically hilarious from an outside perspective that a leader sees all the expense of the soft-power the US has paid so much for as "freeloading". Either you are the world leader and invest to stay in that position, or you're just one of the pack.
dboreham · 3h ago
Only a few idiots and fraudsters in the US see it like that.
BLKNSLVR · 2h ago
And right now they're magnetically clustering to the top.
riffraff · 5h ago
I wonder if this will trigger a sell of in bonds, there's a common story that some investors are only allowed to invest in triple A bonds, and AFAIK this was the last of the big three still holding it for the US.
JumpCrisscross · 5h ago
> some investors are only allowed to invest in triple A bonds
The usual language is two out of three. So any investor who had that language and hadn’t gotten around to amending it to exempt Treasuries had already been forced to sell on the second downgrade.
scrlk · 4h ago
The US now has a lower credit rating than Microsoft:
> The Microsoft corporate credit rating is AAA and Aaa by Standard & Poor's Rating Services and Moody's Investors Service Inc., respectively.
the corporate credit rating scale is different from the sovereign one. That said, msft credit has traded through govt bonds multiple times. So arguably the market-based rating system agrees with you (even though the ratings agencies dont neccessarily)
JackFr · 3h ago
Back in the 90’s there was an explicit “sovereign ceiling” policy at the rating agencies.
Microsoft is smarter and handles it's finances better than the US government, so fair enough
pwarner · 3h ago
But they lack the power to raise taxes, and print money. Also an army.
Iwan-Zotow · 1h ago
Windows tax anyone?
defrost · 1h ago
Dunno 'bout that, King William III had an army and navy in 1696 and controlled the Royal Mint that issued coin.
It's an interesting aside that the Windows tax in great part was driven by revenue loss resulting from coin clipping.
tehjoker · 4h ago
Didn't we lose this about a decade ago during the 2013 government shut down where the Republicans were threatening to miss payments and we got knocked down to AA-? I was wondering if we ever got it back to AAA.
bobthepanda · 4h ago
There are three ratings agencies and the other two downgraded but not Moody's (until now)
quadragenarian · 4h ago
Not to be overly pedantic but there are more than 3. It's just 3 that are commonly used in asset management (S&P, Moody's, Fitch). Others include Morningstar DBRS (Dominion Bond Rating Services - rates primary Canadian debt issuers). Kroll is another one (used to be Duff & Phelps).
fullstackchris · 4h ago
Was gonna say, I thought this already happened last year...
A4ET8a8uTh0_v2 · 4h ago
The reality is that the current trajectory is not exactly sustainable. So, for once, Moody seems to be doing its job. As to where they were for the past decade or so ( lets charitably say they were still trying to figure out where things land post 9/11 ), when all those issues were allowed to fester, is not exactly a big secret.
The simple reality is that US will need to go through a period of pain to correct some of those excesses. It will not be fun for anyone, which is why there is so much effort put forth to kick can down the road.
And the part that really gets me is that congress is discussing cutting taxes, fed is being pressured to lower rates.. as if all those things were not at least a factor in the mess we are in now.
toomuchtodo · 4h ago
The reality is taxes must go up, and the bond market will force it to happen. You can’t keep issuing debt forever to steal from the future for today when all of the evidence points to lower future growth.
Voters might be unsophisticated, but the bond market is not.
> Bond vigilantes, who can bring fiscally irresponsible politicians to heel by unloading a country’s debt, may rear their head if Congress doesn’t show any appetite to bring the federal deficit under control.
<< Bond vigilantes, who can bring fiscally irresponsible politicians to heel
I don't want to give people ideas, but at the same time this is not exactly new to anyone following that set of news. During last EU fiscal crisis, EU came up with a novel approach to handling bond issues. Haircut[1].
Treasuries only receive the favorable yields they do because they were considered the safest asset in the world. Any indicator of potential haircut is going to cause a rapid (further) loss in confidence and a spike in yields, leading to a debt spiral. This is why there was a fear of the implications of DOGE controlling the Treasury payment system (BFS), potentially leading to non payment and default. The capital markets are built on a foundation of trust. If you want continued access to capital (and with debt at ~123% GDP, it should be obvious that the US has no choice but to have continued access to the bond market), you must respect the trust relationship.
I will admit that, at the time, I did not see EU debt holders accept it, but accept they did. I know that cultural differences in US may require a different approach that go beyond PR spin ala 'temporary refund adjustment' since there is money on the line, but I can't help but wonder if it is not coming anyway.
Taxes must go up, on our shrinking young population (right as we deport more and more immigrants and dissuade new ones from coming here). Great, Japan here we come
“For reference, the total net worth of all U.S. households is close to $160 trillion. The rich half (top 50%) own about $156 trillion (or about 98% of it). The poorer half only own about $4 trillion. Breaking down that top half even further, the top 1% (1.3 million families) owns about $49 trillion (or about one-third of the total share) by themselves. And going even further, about half of that $49 trillion is owned by the top 0.1%. That’s only around 136,000 households and includes all of America’s wealthiest people.”
Tax wealth, not work, roughly speaking. With that said, stagnation is inevitable due to demographic dynamics. Historical economic prosperity was because of a demographic dividend that won’t be repeated in our lifetimes.
It should be illegal to borrow with stock as collateral. This makes tax avoidance really easy for wealthy people.
Nobody needs as much wealth as the top 1%. Limits and incentives need to be put in place to essentially create a luxury tax.
Stock buybacks should be disincentivized. Companies holding so much money in cash sitting on the sidelines (Apple) don’t stimulate the economy.
The US has an embarrassing amount of money, it’s just all manipulated away from the market and the people.
Animats · 2h ago
Some countries have a net-worth tax. Here are Switzerland's rules and tax rates.[1] There are few exemptions. The canton of Geneva charges about 0.9% of net worth per year.
The logistics can be argued elsewhere, I’m simply saying that is where you can tax; there is nowhere else of material value to. The majority of US households can’t even afford to survive, let alone face a tax burden.
> For the bottom 60% of U.S. households, a "minimal quality of life" is out of reach, according to the group, a research organization focused on improving lower earners' economic well-being.
Oh, I wasn’t disagreeing with you or trying to argue anything. I agree with your points.
oceanplexian · 3h ago
Why is the phrase "reduce spending" never anywhere to be seen with these awful takes?
The only solution is for the Gov to stop spending money it doesn't have. I don't know how you can insinuate that de-industrialization and taxes are a viable strategy without addressing the root of the problem. It would be like telling someone with a gambling problem that spending more time at the casino and less time at work would improve their finances.
A4ET8a8uTh0_v2 · 3h ago
Everyone has their pet projects is a part of it. I tried saying that we will need to raise taxes AND reduce spending and lemme tell you, it did not go over very well. Hell, in my home state of Illinois, in the face of federal cuts, our brave leaders tell us we should brace for increases to offset those 'losses'.
pwarner · 3h ago
Both need to happen, and people hate both.
The data makes it clear though, taxes are low, spending is high both in comparison to GDP.
Any argument you can do one and not the other is insane.
jack_h · 1h ago
> Any argument you can do one and not the other is insane.
Challenge accepted :).
The argument for lowering spending and lowering taxes is that the size of the economy and the tax base are inherently tied to tax rates and economic growth. Historically, federal tax receipts have hovered around 17 to 18% of GDP since the end of WWII, regardless of the tax rate[1]. Deep spending cuts paired with high taxes might increase the percentage, but it would be of a smaller economy, shrinking the overall tax base and making the debt ratio worse.
I don't know if that's true and I don't think we'll find out because the Republicans in Congress appear to be going for option C, lower taxes and larger deficits. The Democrats are in disarray and reflexively taking a contrary position, but even if they were in power I don't think this would be much of a priority. I think we get to see how far we can go. Maybe we'll beat Japan's debt to GDP ratio or maybe a failed auction or some debasement. The future has a lot of exciting possibilities.
> Why is the phrase "reduce spending" never anywhere to be seen with these awful takes?
Because the government was running a surplus under Clinton and then decided to cut taxes and low and behold there's been a deficit since.
Aloisius · 3h ago
Raising taxes to eliminate the deficit is how you convince the average person that spending cuts are required.
There's little reason for a good chunk of the US, insulated from the true cost of spending, to favor spending cuts.
BirAdam · 3h ago
No one is insulated. If it isn’t taken from people directly, then people feel the spending in price inflation. Every time the government spends, they issue a treasury. That treasury is then used as the backing for loans from the FedRes to members banks. Those banks then lend a multiple of that.
The real issue with spending cuts is that the public will not accept any reductions to entitlements, the poor won’t accept cuts to welfare programs, and the donor class won’t accept cuts to military spending. This means there’s zero political will to fix the situation.
dboreham · 3h ago
One person's "spending money they don't have" is another's "failing to levy adequate taxes on the rich".
GuinansEyebrows · 3h ago
because "reduce spending" sounds nice in a vacuum (sure, there are a lot of things our government spends money on that i don't agree with) but in reality it usually plays out as a cynical ideologically-driven misdirection with little basis in the needs of the country and the people inside it.
spending is a good thing. roads, schools, healthcare, research funding - we need these things in order for america and its people to thrive.
our representation just has this awful aversion to increasing taxes on those who can actually afford to bear the increases.
BirAdam · 3h ago
Research, roads, and schools do not make up a meaningful percentage of the federal budget at all. Healthcare makes a decent chuck with Medicare and Medicaid, and those badly need reform as many people receive aid who are fully capable of paying costs themselves. Social Security, defense spending, and debt service are the other big ones.
Ultimately, no idea what will happen when debt services consumes all tax revenues. This will come in the mid-2030s at the current rate. I figure that the Fed will just suspend the requirement of Treasuries and debt payments, print like crazy, and the USA will look like Zimbabwe.
0x5f3759df-i · 3h ago
We have the worst possible people in government for the financial environment the US is in.
Not only are we already in a bad place with government spending/debt given the new world of high interest rates. We’re just going to blow many trillions of dollars worth of new holes in the budget.
Then throw in the endless tariff stupidity and it’s all just bad, bad, bad.
kevin_thibedeau · 4h ago
Standard & Poor's and Fitch downgraded US credit years ago. Moody's is late to the party.
alabastervlog · 3h ago
I take this as a signal they think there’s no way the other two are going to raise theirs again, and are maybe worried one of those will downgrade another step in the near future while Moody’s rating is still high, which might look bad for them.
actionfromafar · 4h ago
The rating is also a reflection of what the rest of the world believes about the future of the US government. It's not solely about the numbers.
9283409232 · 4h ago
What does this mean for the laymen around here? I'm the laymen if I'm not being clear.
mmooss · 3h ago
A direct, easily defined consequence is that you pay more taxes because the US must pay higher interest rates on vast amounts of money it borrows.
It also creates instability generally - in the economy, business, socially, politically - because unreliable US government finances can destroy all those things.
yongjik · 2h ago
All the talks about US national debt being "unsustainable" rings hollow, when you consider that Trump did everything to tell debtors that the US government is no longer a trustable entity and lending it money might be a bad idea.
In other words, Trump made sure that the US debt situation is unsustainable. I don't know if it was sustainable before Trump (seemed pretty stable to me), but whatever the situation was, Trump made it infinitely worse.
To me this is just another example of Republicans saying the government is broken, when what they really mean is "because we will make it so."
pseudolus · 4h ago
Moody's is in what is, currently, a hazardous line of business. Whatever their accuracy (their performance leading up to the financial crisis in 2008 didn't particularly lend them any credit) the reality is that they are certainly likely to be the target of informal (browbeaten in the media) and formal (investigations undertake by various agencies) actions in the short-term. They've unleashed a shit storm upon themselves the likes that they have probably never seen before. Some late night posts on Truth Social are likely to be imminent.
shkkmo · 4h ago
Since the other 2 of the 3 major rating agencies had already made this downgrade...I guess they're all targets and all that already happened to them?
pseudolus · 3h ago
I don't believe that either Standard & Poor's or Fitch downgraded the U.S of its triple-A credit rating during the current administration so they're relatively immune to any attack. Moody's is a "victim" of bad timing.
actionfromafar · 4h ago
... and if they don't give their honest assessment, they are making themselves obsolete anyway.
mullingitover · 4h ago
The US can issue currency to cover debt obligations. There should never be a situation where debts wouldn't be paid, the problem can just be printed away. The idea that the people who can print more money and pay the interest just wouldn't do it, out of what, spite? Incompetence? Seems pretty bad.
The fact that one party is always behind this financial profligacy, and the US keeps putting it in charge, probably means that the US' debt rating is still much too high.
sandytoast · 3h ago
Most likely the question isn’t ’can they pay’ but ‘can they be trusted to pay’
lesuorac · 3h ago
The stories only 3 paragraphs.
> “This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” the agency wrote.
It's that moody is grading on a curve.
JumpCrisscross · 2h ago
> idea that the people who can print more money and pay the interest just wouldn't do it, out of what
Self preservation. Have we already forgotten what inflation does to incumbents?
czhu12 · 3h ago
Curious as to why this comment got downvoted.
From my basic understanding, this is indeed true. At the cost of rampant inflation, the US can simply print more currency, inflate away historical debts, and not have to default.
If the Moody's credit rating is a measure of the stability of the asset, then a downgrade makes sense. If its to measure the likelihood of a default -- it does seem unlikely the US would simply default.
But maybe there's something I'm missing
ewanmcteagle · 3h ago
What you are missing is fairly straightforward. Inflating away debt is a form of default. People don't want to lend you money when that is how you plan to pay it back -- same outcome as a default. I guess you could do it once but only if you plan to not borrow again.
ViewTrick1002 · 3h ago
The second it happens all new debt will either be extremely expensive or not denominated in dollars.
Doing it is the end to the dollar backed global financial system.
scoofy · 2h ago
Intentionally inflating a currency to pay down debt is effectively a de facto partial default, even if it's not de jure.
satellite2 · 3h ago
That's correct, but that also imply negative interests in inflation adjusted dollars. Isn't that included in this score?
aprilthird2021 · 3h ago
It's true. Maybe, the consequences of doing so are so drastic and would ripple throughout the globe such that getting pennies on the dollar for debt obligations may be a more attractive approach but still a loss for creditors?
A4ET8a8uTh0_v2 · 4h ago
Unfortunately, even in games, infinity money can only get you so far.
SoftTalker · 3h ago
The bonds have a face value and a rate. That is what has to be paid. The fact that the money being used to make the payments might not be worth anything is a risk borne by the bond holders, but there will be no default.
However, if this becomes apparent, it will become increasingly difficult to find buyers for new bond issues.
A4ET8a8uTh0_v2 · 3h ago
<< there will be no default.
Heh. You have a point on a technicality, but I can assure you that people, who lend other people money would likely be a lot less technical about it. In other words, the default may be a shorthand for 'immediately unable to borrow more at the previous rate', but I suppose it is not as catchy.
Iwan-Zotow · 1h ago
Rollover will stop working. New debt issued to retire old debt
potato3732842 · 3h ago
At the end of the day we either reign in the debt or the currency collapses and we're forced to reign in the debt. On a long timeline there is no way to not reign in the debt.
roxolotl · 4h ago
While I do not agree with it the common argument against indiscriminate money printing is inflation. Given that we are exiting an inflationary period and likely entering another it will be interesting to see what they say this time.
tedunangst · 5h ago
Last time around this led to reduced borrowing costs, so good news, I guess.
somanyphotons · 5h ago
I would have expected that a worse credit rating would result in higher interests rates, what happened last time?
toast0 · 3h ago
Worse credit rating is bad economic news. When there's bad economic news, the market tends to 'flee towards safety', and that means selling risky investments and buying treasuries. When the market is moving capital to treasuries, borrowing costs are reduced.
(Doesn't always happen like this, and may not have happened like this last time, but it's not uncommon)
mmooss · 3h ago
You seriously think a reduced credit rating is good news? Or is it another flip attempt to ignore consequences, like a teenager who survived DUI - 'I got there even faster, so it worked pretty well'.
JumpCrisscross · 5h ago
> Last time around this led to reduced borrowing costs
Last time Treasuries were unambiguously a haven asset. That correlation was broken on Trump’s liberation day.
Altogether, I’d be surprised if this downgrade has a material impact on financial markets. It’s much more interesting for the House.
quickthrowman · 4h ago
Incorrect.
> Fitch Downgrade August 1 2023
> SPY around 455 fell to 433 from August 1 to August 18
> By October 27th SPY bottomed around 410 (-10%)
> From August 1 to October 23, US 10y yield went from 3.9% to 5%
Stocks went down and bond yields went up last time. The Federal Reserve raised the federal funds rate from 5-5.25% to 5.25-5.50% during the same time period.
tedunangst · 4h ago
Oh, I missed 2023. Was thinking of 2011 or whenever.
aprilthird2021 · 3h ago
People's insane desire to borrow at ridiculous rates is what got us here...
actionfromafar · 4h ago
This time it’s about owning the libs and making some serious money on inside trading. Everything else is secondary. So it will play out differently.
Long term reforms to make education and healthcare outcomes focused, punishing administrative overhead and rewarding performance. Similarly defense could be massively downsized IMO to just expendable drones and submarine based nuclear deterrence, we don't need a 'triad' - one ballistic sub can basically end the world. Replace defense contracts with guaranteed purchase orders and let the private markets figure out how to do hypersonics or missile defense.
Someone who makes 10 million dollars (or 100 million, or...) a year pays the exact same social security tax as someone who makes $176,100.
You don't even have to raise the cap by very much to fix every foreseeable funding issue Social Security has
Means testing is one of this things that fools people - it sounds good, but in practice is wildly bad at what it’s trying to do, and can be borderline evil.
Beyond the bureaucracy dimension - means testing puts up a barrier, not at the top, but everywhere.
Adding “one more thing” to people who are already struggling can be disproportionally difficult for them to meet, and therefore cause them to miss out on benefits they are completely entitled to.
Additionally, it can create incentives for behavior you would otherwise be completely pathological, such as divorcing your sick spouse because as a couple you don’t qualify for support, but individually they do.
Very few people earn that kind of money as taxable _income_. More people earn that kind of money as unrealized _capital gains_. Social security is paid for with a payroll tax and what amounts to an income tax. Once you're earning several times the cap you stop caring about it. If you earn 5x or 10x the cap then you will probably not be counting on social security, so there's no us-vs-them dynamic likely there. The problem is that to make this make a big different you'll have to hit hard those who earn only 1.5x or 2x the cap, and that's how you'd get an us-vs-them dynamic.
Instead you can increase the retirement age, increase the cap, increase the tax rates, lower the COLAs, etc., and that's what we've seen so far.
You say this as it's some sort of injustice. But the guy who makes 10 million will collect the same benefit in retirement as the guy who makes $176,100. Or are you proposing that the guy who make $10 MM should pay more, but get their benefit capped? Because if that's what you are proposing, I don't see how that is just or fair. Except maybe following the argument along the lines "screw the rich, they can afford it".
It is absolutely a "fair" and "just" thing for a society to do to itself.
Edit: i am flabbergasted at how low literacy is about how our government works.
Technically, yes. Practically, it’s a pair of income and expense streams. Slashing social security payouts to pay for some nonsense is tempting.
My guess is we’ll stick it to Gen X.
If you have issues with what it is, that's fine. But it still doesn't impact our deficit or ability to pay off debt.
Social security itself does not take in any income whatsoever.
Social security is a debt. Therefore it itself directly affects the US' ability to pay off it's debts.
Eh, that's partly true. The true statement is that money must eventually go to fund social security.
Before it's needed (i.e. when tax revenue exceeds benefits), it has been used to buy US treasuries -- the funds used to do so then appeared for Congress' general use.
You can see the US treasures the social security trust fund is currently holding here: https://www.ssa.gov/OACT/ProgData/investheld.html
> It has literally no impact on the deficit or our ability to pay off debt. By statute.
This however is wrong.
As a simple proof: let's just up social security payments by 3000x... social security is still "self-funded" and "separate" but that would be an untenable debt and the US would immediately default on that obligation. The amount and structure of social security debt matters to the US' ability to pay.
Social security is a promise to pay an amount of money in the future and it is backed by the "full faith and credit" of the US government. The bigger it is, the bigger the debt, the hard it is to pay off. It's a big impact.
Just because it's specifically funded and tied to a precise specific tax does not make it immune from debt considerations.
Could that happen? Sure. But that would inherently involve destruction of the instituition as we refer to it today.
https://en.wikipedia.org/wiki/Social_Security_(United_States...
[1] We only recently just reached the tail-end of the 1983 reforms' gradual shift in retirement age.
Or...raise the contribution limit which fixes the whole thing easily without having to screw over the people that paid in and just want to get back what they were promised.
Raise the retirement age? Really? All this advancement to make our lives better and more efficient, and we're going to conclude that we all need to to work more?
And meanwhile we can piss away cash by the trillion but when it comes to social security suddenly there's no money to be found anywhere.
They've fooled everyone into believing "the fund will be depleted" in x years. Then put some more money in assholes.
>Without legislative changes, trust fund reserves are projected to be depleted in 2033 for the OASI fund.[16] Should depletion occur, incoming payroll tax and other revenue would be sufficient to pay 77 percent of OASI benefits starting in 2035.
In my humble opinion, this kind of broken promise borders on "the government defrauding the people".
It would be more legitimate to say "SS won't be there for you if you make too much" to those in their teens and 20's just entering the workforce -- but that won't have a major effect on cash outflow needed to satisfy SS obligations for 40-ish years (except for the small fraction of rich unfortunates who get SS because they become unable to work at a young age.)
You might also argue that the level of prying into people's finances implied by "means testing" is a form of illegitimate government overreach. If you believe this, in theory you should, for consistency, also believe that individual income tax ought to be eliminated (which many people consider a radical proposition).
Source that such reforms add up to this much? What do the reforms look like in concrete terms?
We could magically pay it off right now and the US would still look like a credit risk. It's all about trade policy right now, and the general existential risk that we blow it all up. The treasury rate spike in April (likely but inconclusively due to strategic dumping) continues to have everyone spooked, and fiscal restraint, tax policy, austerity, etc... don't speak to that concern at all.
[1] Corrected: service cost of the debt
This[1] shows in the 80s the total debt to GDP ratio started at 31% and ended at 51%. We are currently at about 122% according to the same chart. I'm not sure what numbers you're referring to, could you provide a source?
In terms of the bonds being paid off that's true, but they were paid off by selling even more bonds to cover new spending and old, i.e. total debt grew even if individual bonds matured.
[1] https://fred.stlouisfed.org/series/gfdegdq188S
I think you are very much mistaken: https://fred.stlouisfed.org/series/gfdegdq188S
https://fred.stlouisfed.org/graph/?g=iEiV
Again, if the debtpocalypse didn't happen then it's clearly not happening now. This is simply not about fiscal policy. Period. It's about institutional trust in the government's ability to manage payments.
(No, that's not correct. Borrowing in the 80's was more expensive. Period.)
If I have a $1M mortgage at 6%, and a $1000 credit card debt at 25%, which is harder for me to pay off, assuming I make $100K per year?
I would have just assumed that if you're another big financial institution you're doing your own research.
Is it that orgs below a certain size need these people to help tell them what's going on?
I would have also assumed anyone who holds an important amount of US treasuries does their own research and doesn't need to listen to any of these agencies?
What actual value do they provide? (esp. in light of the housing crisis proving they weren't providing any value at all?)
https://www.theguardian.com/business/2017/jan/14/moodys-864m...
It’s no secret the USA fiscal path is unsustainable, the Fed has said the same.
Fun fact: those AAA securities paid out. We have obvious endogeneity issues with the bailouts. But the evidence is strong that even absent the bailouts, those senior tranches would pay out.
The problem was that most AAA securities are both highly solvent and high liquid. But these proved solvent but illiquid. That caused issues when their owners tried to dump them. But Moody’s rated solvency, not liquidity.
Moody's has been in this game a long time, I'm sure they're not perfect, but also being wrong once doesn't mean you're always wrong.
Doesn't anyone here think the US recent economic instability merits a reduction in credit rating? We have a massive amount of debt (we borrowed to pay something like $800 billion in interest on our debt last year) and are essentially betting on our rocketship economy to offset our enormous debt in the future. The latest economic turmoil does cast a bit of doubt on that ability to pay off this huge debt later on no? I mean, isn't that a reasonable conclusion, regardless of whether you hate Moody's or think they are stupid?
Additionally, if you are on the other end (the one getting the rating), you pay the credit agencies for a rating so that buyers of debt will buy it. It's basically required that you have a rating if you want to issue debt.
It's a racket in some ways with a ton of bad incentives and inefficiency.
Kind of like a lot of things.
Yes. You can look at default rates by initial and proximate rating and see clear information.
> in light of the housing crisis proving they weren't providing any value at all?
Name me one AAA-rated security that defaulted. They were downgraded. They lost paper value. But to my knowledge, they didn’t default. (Those who held them did well [1].)
[1] https://www.nber.org/digest/aug18/evaluating-role-credit-rat...
A significant amount of retail and institutional investment still use these ratings as a guiding indicator.
Not everyone does due diligence. If you have ever worked for a corporation, you know that they love cutting corners. And one corner they'd happily cut is time on due diligence - even if it causes a crash later on. It is not a problem for this quarter.
The interesting aspect to me is that they are not a government department- they make these ratings as part of a profitable business model. It's not like they keep chugging along no matter what.
It just seemed like that during the housing crisis the businesses seen to be putting their "ok" stamp on everything would have been the first to go down.
I don't think it makes sense for every single person or company considering investing in Company XYZ to do their own, separate due diligence on XYZ. The information they each would uncover is the same.
It's a lot more efficient to pay a ratings agency to rate XYZ once. The tricky part is getting the incentives right so that the ratings the ratings agency produces are accurate. (There already is a reputational risk incentive pushing towards doing this the right way, but as we saw in 2008, there are other incentives pushing the other way, and they might often be stronger.)
* Dollar "Milkshake" Theory: the dollar (and treasuries) are so in demand that it kind of doesn't matter how far into debt we go, because the point is that treasuries are mostly used for financial collateral, not for earning interest payments. So whenever there is a crisis, there will be a rush to the dollar, not away from it.
* Traditional Fixed Income valuation: that fixed income buyers care about real returns, and will penalize nations that get themselves into situations where they must either default in actuality, by refusing to pay their debts, or by effectively defaulting (in real terms) by inflating their currencies to the point of writing off their debts.
I understand the argument from both perspectives, and I understand that politics can easily lead to defaults that don't technically need to happen. I still have no idea which of these two theories will prove more accurate going forward. I generally consider myself pretty fiscally conservative, so I tend to lean toward traditional theories of fixed income.
It's always someone else's fault.
The usual language is two out of three. So any investor who had that language and hadn’t gotten around to amending it to exempt Treasuries had already been forced to sell on the second downgrade.
> The Microsoft corporate credit rating is AAA and Aaa by Standard & Poor's Rating Services and Moody's Investors Service Inc., respectively.
https://www.microsoft.com/en-us/investor/faq
I guess they’ve that rule.
https://www.spglobal.com/ratings/en/research/articles/240704...
It's an interesting aside that the Windows tax in great part was driven by revenue loss resulting from coin clipping.
The simple reality is that US will need to go through a period of pain to correct some of those excesses. It will not be fun for anyone, which is why there is so much effort put forth to kick can down the road.
And the part that really gets me is that congress is discussing cutting taxes, fed is being pressured to lower rates.. as if all those things were not at least a factor in the mess we are in now.
Voters might be unsophisticated, but the bond market is not.
> Bond vigilantes, who can bring fiscally irresponsible politicians to heel by unloading a country’s debt, may rear their head if Congress doesn’t show any appetite to bring the federal deficit under control.
https://usafacts.org/government-spending/
https://finance.yahoo.com/news/bond-vigilantes-killed-trump-...
https://ghpia.com/wp-content/uploads/2024/07/Investment-Insi...
I don't want to give people ideas, but at the same time this is not exactly new to anyone following that set of news. During last EU fiscal crisis, EU came up with a novel approach to handling bond issues. Haircut[1].
[1]https://www.sciencedirect.com/science/article/abs/pii/S10575...
https://www.cbpp.org/research/federal-budget/doge-access-to-...
https://www.jpmorgan.com/insights/markets/top-market-takeawa...
https://www.pbs.org/newshour/politics/how-a-debt-default-cou...
“For reference, the total net worth of all U.S. households is close to $160 trillion. The rich half (top 50%) own about $156 trillion (or about 98% of it). The poorer half only own about $4 trillion. Breaking down that top half even further, the top 1% (1.3 million families) owns about $49 trillion (or about one-third of the total share) by themselves. And going even further, about half of that $49 trillion is owned by the top 0.1%. That’s only around 136,000 households and includes all of America’s wealthiest people.”
Tax wealth, not work, roughly speaking. With that said, stagnation is inevitable due to demographic dynamics. Historical economic prosperity was because of a demographic dividend that won’t be repeated in our lifetimes.
https://news.ycombinator.com/item?id=43861997 (citations)
It should be illegal to borrow with stock as collateral. This makes tax avoidance really easy for wealthy people.
Nobody needs as much wealth as the top 1%. Limits and incentives need to be put in place to essentially create a luxury tax.
Stock buybacks should be disincentivized. Companies holding so much money in cash sitting on the sidelines (Apple) don’t stimulate the economy.
The US has an embarrassing amount of money, it’s just all manipulated away from the market and the people.
[1] https://fidulex.ch/en/swiss-wealth-tax/
> For the bottom 60% of U.S. households, a "minimal quality of life" is out of reach, according to the group, a research organization focused on improving lower earners' economic well-being.
https://www.cbsnews.com/news/cost-of-living-income-quality-o...
https://lisep.org/mql
The only solution is for the Gov to stop spending money it doesn't have. I don't know how you can insinuate that de-industrialization and taxes are a viable strategy without addressing the root of the problem. It would be like telling someone with a gambling problem that spending more time at the casino and less time at work would improve their finances.
Challenge accepted :).
The argument for lowering spending and lowering taxes is that the size of the economy and the tax base are inherently tied to tax rates and economic growth. Historically, federal tax receipts have hovered around 17 to 18% of GDP since the end of WWII, regardless of the tax rate[1]. Deep spending cuts paired with high taxes might increase the percentage, but it would be of a smaller economy, shrinking the overall tax base and making the debt ratio worse.
I don't know if that's true and I don't think we'll find out because the Republicans in Congress appear to be going for option C, lower taxes and larger deficits. The Democrats are in disarray and reflexively taking a contrary position, but even if they were in power I don't think this would be much of a priority. I think we get to see how far we can go. Maybe we'll beat Japan's debt to GDP ratio or maybe a failed auction or some debasement. The future has a lot of exciting possibilities.
[1] https://fred.stlouisfed.org/series/FYFRGDA188S
Because the government was running a surplus under Clinton and then decided to cut taxes and low and behold there's been a deficit since.
There's little reason for a good chunk of the US, insulated from the true cost of spending, to favor spending cuts.
The real issue with spending cuts is that the public will not accept any reductions to entitlements, the poor won’t accept cuts to welfare programs, and the donor class won’t accept cuts to military spending. This means there’s zero political will to fix the situation.
spending is a good thing. roads, schools, healthcare, research funding - we need these things in order for america and its people to thrive.
our representation just has this awful aversion to increasing taxes on those who can actually afford to bear the increases.
Ultimately, no idea what will happen when debt services consumes all tax revenues. This will come in the mid-2030s at the current rate. I figure that the Fed will just suspend the requirement of Treasuries and debt payments, print like crazy, and the USA will look like Zimbabwe.
Not only are we already in a bad place with government spending/debt given the new world of high interest rates. We’re just going to blow many trillions of dollars worth of new holes in the budget.
Then throw in the endless tariff stupidity and it’s all just bad, bad, bad.
It also creates instability generally - in the economy, business, socially, politically - because unreliable US government finances can destroy all those things.
In other words, Trump made sure that the US debt situation is unsustainable. I don't know if it was sustainable before Trump (seemed pretty stable to me), but whatever the situation was, Trump made it infinitely worse.
To me this is just another example of Republicans saying the government is broken, when what they really mean is "because we will make it so."
The fact that one party is always behind this financial profligacy, and the US keeps putting it in charge, probably means that the US' debt rating is still much too high.
> “This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” the agency wrote.
It's that moody is grading on a curve.
Self preservation. Have we already forgotten what inflation does to incumbents?
From my basic understanding, this is indeed true. At the cost of rampant inflation, the US can simply print more currency, inflate away historical debts, and not have to default.
If the Moody's credit rating is a measure of the stability of the asset, then a downgrade makes sense. If its to measure the likelihood of a default -- it does seem unlikely the US would simply default.
But maybe there's something I'm missing
Doing it is the end to the dollar backed global financial system.
However, if this becomes apparent, it will become increasingly difficult to find buyers for new bond issues.
Heh. You have a point on a technicality, but I can assure you that people, who lend other people money would likely be a lot less technical about it. In other words, the default may be a shorthand for 'immediately unable to borrow more at the previous rate', but I suppose it is not as catchy.
(Doesn't always happen like this, and may not have happened like this last time, but it's not uncommon)
Last time Treasuries were unambiguously a haven asset. That correlation was broken on Trump’s liberation day.
Altogether, I’d be surprised if this downgrade has a material impact on financial markets. It’s much more interesting for the House.
> Fitch Downgrade August 1 2023
> SPY around 455 fell to 433 from August 1 to August 18
> By October 27th SPY bottomed around 410 (-10%)
> From August 1 to October 23, US 10y yield went from 3.9% to 5%
Stocks went down and bond yields went up last time. The Federal Reserve raised the federal funds rate from 5-5.25% to 5.25-5.50% during the same time period.