This country received a financial downgrade earlier this month. In one sense it was justified. In another, it was absurd. Fitch Ratings reduced America’s financial status because of the increasing amount of national debt piled up by Congress and the president.
This is no small issue. The other day, I read that nearly all (98%) nations that have surpassed a 130 percent debt-to-GDP ratio in the last 225 years eventually defaulted. We exceeded that percentage for a short time a few years ago. The Congressional Budget Office expects federal government debt held by the public to reach 115 percent of GDP this decade.
Although the downgrade was justified, it is also absurd because it supposedly is based upon the ability or inability of a nation to meet its debt obligations. The likelihood of the federal government going into default is non-existent, at least for now. The Treasury and the Federal Reserve can create money to pay back sovereign debt.
The $2 trillion from the CARES Act helped to rescue the economy. But this administration didn’t want to go back to normal. Instead, the American Rescue Plan, the Infrastructure Investment and Jobs Act, and the so-called Inflation Reduction Act pumped trillions more into the economy, setting off nine percent inflation. There is no evidence that this administration is willing to cut back spending.
Perhaps the most puzzling part of the Fitch downgrade was the concern over the “debt-limit political standoffs.” Yet, those are often the only times when some members of Congress use the threat of default to restrain spending.
The financial downgrade should be a wake-up call but unfortunately, the president and many in Congress merely hit the snooze button.
This post originally appeared at https://pointofview.net/viewpoints/financial-downgrade/?utm_source=rss&utm_medium=rss&utm_campaign=financial-downgrade