On Tuesday, The National Review reported that America’s long-term foreign-currency-issuer default rating has been downgraded. You may have missed this news because the media was focused on the Trump indictment. However, this news will impact more Americans and needs to be heard.
The article reports:
Fitch Ratings on Tuesday downgraded America’s long-term foreign-currency-issuer default rating, citing ongoing and projected future fiscal instability, an increasingly long and disruptive governance process, and rising debt and deficits.
The tumultuous negotiations and gridlock between Republicans and Democrats in June over raising the debt ceiling were evidence that “there has been a steady deterioration in standards of governance over the last 20 years,” Fitch, one of the “big three” U.S. credit-ratings agencies alongside S&P and Moody’s, said in a statement. That episode put the U.S. at risk of payment default and threatened to plunge it into a debt crisis. After weeks of back-and-forth, the parties agreed to suspend the debt limit for two years until January 2025, with a number of conditions and concessions made to both sides.
The government as of late has been operating under modern monetary theory.
Business Insider describes modern monetary theory as follows:
Modern Monetary Theory (MMT) is an economic theory that suggests that the government could simply create more money without consequence as it’s the issuer of the currency, according to the Federal Reserve Bank of Richmond. As part of this theory, the thinking is that government deficits and national debt don’t matter nearly as much as we think they do.
This is the equivalent of the person who says, “How can I be overdrawn–I still have checks?” It is an avoidance of responsible spending and has gotten us into the mess we are currently in. Excessive printing of money creates inflation and hurts most Americans.
The article at The National Review notes:
Among the others factors the agency said were making the U.S. less reliable to honor its obligations are the Federal Reserve tightening monetary conditions via interest-rate increases to combat inflation. The central bank also continues to shed its massive balance sheet of mortgage-backed securities and U.S. Treasuries, furthering fostering an environment of tighter credit, Fitch said. The economy, the agency noted, is expected to slip into a “mild recession” in the fourth quarter of 2023.
Hang on to your hats. We may be in for a rough ride.