The downgrading of the United States: the way forward
Fitch downgrades the US debt rating.
Even though specialized media mentioned it, the downgrading of the rating of the United States by Fitch has not had even close to the downgrading by Standard & Poor’s in 2011.
Fitch Ratings downgraded its US debt rating this week from the highest AAA rating to AA+, citing “a steady deterioration in standards of governance.” Over the past years, the US debt has been considered as “stable”. “the nation’s high and growing debt burden and penchant for brinkmanship over America’s authority to borrow money had eroded confidence in its fiscal management. “
Yet, it demonstrated that an essential element of the US creditworthiness had tumbled: the ability of Congress to agree on a debt ceiling, making the US look like a third world country.
A debt management system that beats rationality
Lots have been written about the lack of integrity of the US debt management system that allows the same Congress to agree on a budget and not give the country the means to use the resources it has to finance its structural deficit. A debt system that allows such an aberration can only create fraudulent debt management. As I was watching the debates on the debt ceiling, I was ashamed to see Lawmakers and the executive branch discrediting themselves with arguments that had no rationality other than political infighting.
The AAA rating is a privilege that must be earned.
But the Fitch downrating goes one level down: the United States are not worthy a AAA rating and only gets it because the two rating agencies are American and not willing to accept the objectivity of a rating. There is a fundamental hypocrisy at the top of the American Republic. Its governance is fraud. The evolution of the US debt deserves a serious reconsideration of the current system.
This Chart demonstrates the growing debt to the US GDP.
This chart demonstrates that the US no longer has the substance to carry its debt.
A wealthy indebted country.
What it tells us is that the United States might be the richest economy, but it owes its wealth though years of accumulation of debt, not own resources. It is not sustainable.
Needless to say, this has been largely observed by our allies, but certainly by our enemies who can see the weakness of the country. The US is no longer as credit worthy as it used to be.
Yet, inequalities of wealth continue to increase.
Similar examples exist in emerging markets.
Congress addiction to debt.
They simply love it. In an irresponsible behavior, lawmakers enjoy spending six months fighting on a non-substantial issue, using slogans (they are not worth the name of arguments) to play dubious political games.
Do we need to stress the despicable show it gives to the world who sees the US giving lessons to the world while misbehaving its own debt? They are asked to keep their finance in order by the International Monetary Fund, but this requirement excludes the United States.
Will there be courageous political leaders prepared to revisit this fraudulent system and restore the credit worthiness of the United States?
Are the US media brave enough to downgrade their coverage of the kindergarten shenanigans and make lawmakers and political parties responsible for disrupting the country’s fiscal management. As a citizen, I am ashamed to see my country displaying this political immaturity while pretending to be the world leader of financial stability.
The United States cannot expect to see the dollar continue to be the world’s reserve currency while creating a situation of irreversible deficit, and therefore hires interest rates than Europe and Japan.
The way Forward
The current situation of the US debt is not (yet) dramatic, but requires action, lucidity and courage.
1. Stop the denial by the public authorities: we need a narrative from the relevant authorities, the Treasury as well as the Federal Reserve that acknowledges that the situation of the US debt is unsustainable. The reaction to the Fitch downgrading is a perfect example of this denial.
2. Inform the public with transparency of the risks associated with US indebtedness.
3. Renounce the idea that one or another administration is guilty. It is not because the Fitch downgrading happens under the Biden administration tat it is a Democrat mistake. The Trump administration was worse.
4. Recognize that it is a matter of public utility and a risk for the entire country. It requires a bipartisan initiative that will objectively make a “State of the Union Debt” and propose solutions to the current crisis.
5. Create an awareness that the US no longer has the means to fight Russia in Ukraine, stop China in Taiwan and fight the challenges of climate change.
It requires leadership and statesmanship. Do the US still have a reservoir of such political talents? Does Congress accept the urgency of the situation?
