National debt a threat to U.S. - September 2023
Talk about some news getting buried. Many of you may or may not have read about another financial rating company downgrading U.S. Treasury Bonds from triple A to double A plus. U.S. Secretary of the Treasury Janet Yellen immediately responded by saying the rating agency hadn’t accounted for recent changes. Fitch Ratings, the company which issued the downgrade, has not changed its rating despite what I’m sure were some high-level discussions with Ms. Yellen. It should be noted this isn’t the first time Treasury Bonds have been downgraded. 2011 saw S&P downgrade U.S. Treasury securities. That only leaves Moody’s Investors Service as the lone entity which hasn’t downgraded Treasury securities.
While some of the big brains in the economics world argue over the appropriateness of this change, many Americans continue to be concerned over how we as a society will service our debt. A downgrade raises the cost we taxpayers must pay to those who buy our debt. Given the size of our national debt, a small increase can have a large impact on our ability to pay back our obligations.
Whenever Congress and the President argue over how much to raise the debt ceiling taxpayers should remind themselves of two issues. The debt ceiling arguments revolve around whether the U.S. will default on their loans and how we are going to pay the loans back.
For quite a while, America has benefited from having a stable economy. That stability has made American debt an attractive and safe investment for private individuals and also other countries looking to park money in an investment which will pay it back. After all, with an economy the size of ours, it seems inconceivable that we would find ourselves in a position of default similar to many of the less stable economies around the world. Fitch’s rating, however, reminds us that politicians cannot ignore economics.
At the same time our financial house is showing some cracks, our major economic challenger, China, is moving to try and make their currency the default currency for the world. China’s economy is difficult to measure given the notorious “cooking of the books” the government does to ensure whoever is in power looks good. Analysts of China’s economy have pointed out that much of what is going on in China is like America, in that the government is financing their expansion policies with debt. However, China has made inroads in a number of countries in Africa, Asia, the Middle East and even Europe with its “Belt and Road” initiative. This spending by China in other countries is doing two things. The first is an effort to influence these countries towards the Chinese ideology. The second is to try and influence these countries to move away from a dollar standard.
Recent discussions about how successful the Chinese will be in receiving a return on their investment shows that many of these countries could be close to defaulting on the payback of their loans to China. How China will enforce the terms of their loans will be interesting, but you can be sure they will want something in exchange for loan forgiveness. What the impact will be on China’s economy when or if these defaults occur may well determine whether the yuan makes inroads against the dollar.
What China does as these countries struggle to repay their loans will probably prove to be destabilizing, at least in the Asia Pacific region. One thing is clear…too much debt by any nation with economies the size of the U.S. or China will have far reaching impacts on global affairs as well as how their citizens live.
Sometime ago a military official declared global warming as a threat to the U.S. and the world. Perhaps it is time for people to recognize the national debt as a threat to the U.S. as well as the world.
By Ken Hamilton, Wyoming Farm Bureau Federation Executive Vice President