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The money to pay workers gets reallocated to pay creditors, then it runs out and the US is downgraded as a credit risk making it harder and more expensive to bo

• gizmo686 5y ago
  > the US is downgraded as a credit risk making it harder and more expensive to borrow in the future. That isn't the way it works. At least for the US. The US's rating was downgraded in 2011 (following another debt-ceiling near-miss). What followed was a general market decline, but an increased demand for US treasury bonds, even though that was precisely what had just gotten downgraded. Presumably what happened was the the downgrade caused some general concern in the market; which in turn caused capital to flee to safer assets. Regardless of its official rating, US bonds are the textbook example of a safe asset, causing the increased demand. At a higher level, credit ratings are useful because people are not familiar with every lender. The US is so well known as an entity that people don't pay nearly as much attention to its rating as they do for others. Plus, the US government is too big to fail. If you wanted to protect your portfolio against a US default, you probably have bigger concerns than the value of US debt since it would likely be a small part of your direct portfolio but would pull down everything with it.