{"id":10160,"date":"2023-08-08T14:43:04","date_gmt":"2023-08-08T14:43:04","guid":{"rendered":"https:\/\/isafespend.com\/news\/us-debt-downgrade-could-mean-trouble-ahead-we-should-heed-the-warnings\/"},"modified":"2023-08-08T14:43:04","modified_gmt":"2023-08-08T14:43:04","slug":"us-debt-downgrade-could-mean-trouble-ahead-we-should-heed-the-warnings","status":"publish","type":"post","link":"https:\/\/isafespend.com\/?p=10160","title":{"rendered":"US debt downgrade could mean trouble ahead. We should heed the warnings"},"content":{"rendered":"
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Recently Fitch\u2019s, a service that rates the quality of bonds, downgraded U.S. Treasuries from AAA to AA+.<\/p>\n

Bad news, right? I mean if your credit score went down wouldn\u2019t you be at least a bit worried\u00a0\u2013 especially if you were about to shop for a new car? \u00a0Of course.<\/p>\n

And so shouldn\u2019t you worry that your government \u2013 which every day borrows enough money to buy about 82,000 new cars \u2013 is seeing their credit score go down? Yeah, you should.\u00a0<\/p>\n

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But you know who doesn\u2019t seem worried? Warren Buffett. On Thursday he gave an interview in which he said:<\/p>\n

BIDEN \u2018PUSHED AMERICA\u2019S CREDIT RATING OFF THE LEDGE’ WITH FITCH DOWNGRADE, GOP SAYS<\/strong><\/p>\n

“Berkshire (his investment firm) bought $10 billion in U.S. Treasuries last Monday. We bought $10 billion in Treasuries this Monday. And the only question for next Monday is whether we will buy $10 billion in 3-month or 6-month”\u00a0He went on to say, “The dollar is the reserve currency of the world, and everybody knows it.”<\/p>\n

Being rich and being smart are not the same thing \u2013 unless your name is Warren Buffett. And so maybe we can ignore that queasy feeling and get on with business as usual. If Warren thinks we\u2019re good, aren\u2019t we good?<\/p>\n

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Maybe. But remember, being rich and being careful are also not the same thing \u2013 unless your name is Warren Buffett. Mr. Buffett\u2019s answer was very careful. And so maybe we should think about what he said and \u2013 more importantly \u2013 what he did not say.<\/p>\n

What he said is that Berkshire is going to continue buying short-term Treasuries, debt that matures in less than one year. This means he\u2019s not worried that Fitch\u2019s downgrade will matter much to the quality of these short-term investments. No financial apocalypse between now and Christmas.<\/p>\n

And why does he think that? Because “The dollar is the reserve currency of the world, and everybody knows it.”<\/p>\n

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\"Warren<\/source><\/source><\/source><\/source><\/picture><\/div>\n<\/p><\/div>\n

That last bit is important. The fact that the dollar is the reserve currency means that a huge volume of big international deals is negotiated in dollars. More importantly, it means that almost every other country holds big balances of dollars and U.S. Treasuries to help stabilize their own currency and smooth these dollar-denominated deals.\u00a0 At last count there were about $9 trillion of dollars and U.S. Treasuries in the pockets of foreigners. In other words, the world has no choice but to continue loaning us money.<\/p>\n

But should we continue borrowing that money?\u00a0Mr. Buffett did not say, but in the past, he\u2019s made it quite clear that the U.S. needs to live within its means. He\u2019s even gone so far as to propose a law saying that no member of Congress can stand for re-election if the deficit is more than 3% of GDP. Had such a law been in effect, the last member of Congress who could have stood for another term would have been voted in during the Obama administration.\u00a0<\/p>\n

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The Congressional Budget Office projects that federal deficits will approach or exceed 6% of GDP \u2013 twice Mr. Buffett\u2019s threshold to fire the entire Congress \u2013 every year for the next 10 years. (And that, by the way, is without any major recession or other crises.) The total debt, which averaged less than half of GDP for the second half of last century, will be almost double GDP by 2053. We will spend more on interest payments than on national defense.<\/p>\n

Fitch\u2019s downgrade doesn\u2019t mean were about to default. It does mean we\u2019re looking like a country that can\u2019t be depended on. Does that mean we\u2019ll lose our status as a reserve currency? Who knows.<\/p>\n

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Remember the old joke about the hiker who, when challenged by an angry bear found comfort in the thought that he didn\u2019t have to outrun the bear, he just had to outrun his buddy. Maybe the world will mess things up even more than us, no one will step up to take over the role of the U.S. dollar and we\u2019ll be OK.<\/p>\n

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But even then, will we really be OK? Can we dodge inflation, keep employment strong and continue to grow? It\u2019s hard to do all that at once.\u00a0<\/p>\n

It seems inevitable given the way things are going that debt becomes an overwhelming burden and an unavoidable obsession. Mr. Buffett didn\u2019t say that there\u2019s a bear coming down the trail. Fitch\u2019s did. Let\u2019s get ready.<\/p>\n

CLICK HERE TO READ MORE BY MICHAEL DAVIS<\/strong><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Recently Fitch\u2019s, a service that rates the quality of bonds, downgraded U.S. Treasuries from AAA to AA+. Bad news, right? I mean if your credit score went down wouldn\u2019t you be at least a bit worried\u00a0\u2013 especially if you were about to shop for a new car? \u00a0Of course. And so shouldn\u2019t you worry that<\/p>\n","protected":false},"author":1,"featured_media":10161,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[43],"tags":[],"class_list":{"0":"post-10160","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-news"},"yoast_head":"\nUS debt downgrade could mean trouble ahead. We should heed the warnings | iSafeSpend<\/title>\n<meta name=\"description\" content=\"Recently Fitch\u2019s, a service that rates the quality of bonds, downgraded U.S. Treasuries from AAA to AA+. Bad news, right? 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