Yesterday Fitch downgraded US Federal debt to AA+. Everyone in the administration and many economists attacked the decision as baseless, curious, etc.
But, one chart says it all (see below). US debt as a percentage of GDP is now at wartime levels and has been climbing steadily for decades. Not good...
Ok, Ok... one more chart.
The Fed has been printing enormous amounts of money (debt) ever since the Great Debt Crisis. It has ballooned its balance sheet from 6% of GDP in 2008 to 36% of GDP at the height of the COVID Crisis, and slightly lower today at 32% (see chart below).
Basically, the Fed is financing the huge federal budget deficits by printing money and buying Treasurys (government debt). The US economy is being "monetized", to coin a term. Another term, more apt for Roman times, is that the "coin" is being debased.
Hence, the downgrade.
its worse than it looks... only production is useful for paying down debt and the U.S. economy is heavily skewed towards consumption.
ReplyDelete"US debt as a percentage of GDP is now at wartime levels"
ReplyDeleteMaybe because the US government is financing the war in Ukraine to the tune of $75 billion (and counting),
Helping Ukraine fend off genocidal fascist invaders is morally and economically profitable.
Delete