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What does a credit rating even mean for a country that prints reserve currency? Who gives a shit what Moodys rates America. We’re the only game in town and you’

What does a credit rating even mean for a country that prints reserve currency? Who gives a shit what Moodys rates America. We’re the only game in town and you’ll all have to like it.

nopassrecover 3y ago
Agreed. I’m not entirely sure why the US even borrows at all other than “that’s the way it’s always done it and our system is configured accordingly”. The primary purpose of US Gov borrowing seems to be to ensure the stability of the currency both against its own expenditure in excess of tax and other receipts and at times to shift the balance of trade with other nations, i.e. borrowing being effectively the US Gov paying some other party not to spend US dollars for a term so that the US Gov (or economy more broadly) can spend instead. The underlying assumption here seems to be that the inflationary impact will net out (with the nominal expectation there will be adjustments for changes in the time value of money via the interest on borrowings). However, in the first instance there are other ways the US Gov could achieve the same outcome (either other ways to influence the ways other parties use/spend the currency, or other ways to offset the inflationary impact of its own actions). So why is borrowing better than those alternatives and how often do we revisit that argument, particularly given how much both the currency and economy have changed in the last 50 years. In the second, I’m not convinced that this necessarily nets out the inflationary impact or that every dollar is the same as every other dollar. My sense is it matters more whose hand the dollar is in if we want to model how it will impact the economy. For instance, if the US Gov spent $1tn on Defence contractors or the same on “helicopter money” the former is likely to exacerbate wealth inequality while the latter is likely to exacerbate inflation. But they’d “borrow” the same either way and we’d say that had netted out. Equally the “other party” spend you’re trying to stop by borrowing money out of the economy is not always equivalent: selling T Bonds for the retirement accounts of people who weren’t planning to spend that money anyway is going to impact the economy differently than encouraging young families to buy war bonds instead of new TVs just as selling bonds to foreign banks and governments is going to land differently again. I feel like the obsession with surplus/deficit and national debt, together with unnecessarily overcomplicated financial jargon, means there are too few first principles discussions about the purpose of currency, the nature of the economy, and the policy levers we choose not to even look at, yet alone pull.
- injeolmi_love 3y ago
  In theory, if the government spends by borrowing there should be less of an inflationary impact since the money is taken from the private sector and recirculated. In practice, the bonds and bills are used as collateral for new private sector loans, so the inflationary aspect is almost entirely preserved.
ckastner 3y ago
> What does a credit rating even mean for a country that prints reserve currency? The credit rating affects borrowing cost (how much interest you have to pay). When you think of the debt ceiling that the US frequently hits, somebody is buying that debt. And reserve currency or not. Printing your own money dilutes it, contributing to inflation. Edit: Forgot to say, a lot of that debt is held by U.S. tax payers and corporations. To see what effect rising interest rates have, you need to look no further than Silicon Valley Bank.

What does a credit rating even mean for a country that prints reserve currency? Who gives a shit what Moodys rates America. We’re the only game in town and you’ll all have to like it.

nopassrecover 3y ago

Agreed. I’m not entirely sure why the US even borrows at all other than “that’s the way it’s always done it and our system is configured accordingly”. The primary purpose of US Gov borrowing seems to be to ensure the stability of the currency both against its own expenditure in excess of tax and other receipts and at times to shift the balance of trade with other nations, i.e. borrowing being effectively the US Gov paying some other party not to spend US dollars for a term so that the US Gov (or economy more broadly) can spend instead. The underlying assumption here seems to be that the inflationary impact will net out (with the nominal expectation there will be adjustments for changes in the time value of money via the interest on borrowings). However, in the first instance there are other ways the US Gov could achieve the same outcome (either other ways to influence the ways other parties use/spend the currency, or other ways to offset the inflationary impact of its own actions). So why is borrowing better than those alternatives and how often do we revisit that argument, particularly given how much both the currency and economy have changed in the last 50 years. In the second, I’m not convinced that this necessarily nets out the inflationary impact or that every dollar is the same as every other dollar. My sense is it matters more whose hand the dollar is in if we want to model how it will impact the economy. For instance, if the US Gov spent $1tn on Defence contractors or the same on “helicopter money” the former is likely to exacerbate wealth inequality while the latter is likely to exacerbate inflation. But they’d “borrow” the same either way and we’d say that had netted out. Equally the “other party” spend you’re trying to stop by borrowing money out of the economy is not always equivalent: selling T Bonds for the retirement accounts of people who weren’t planning to spend that money anyway is going to impact the economy differently than encouraging young families to buy war bonds instead of new TVs just as selling bonds to foreign banks and governments is going to land differently again. I feel like the obsession with surplus/deficit and national debt, together with unnecessarily overcomplicated financial jargon, means there are too few first principles discussions about the purpose of currency, the nature of the economy, and the policy levers we choose not to even look at, yet alone pull.

injeolmi_love 3y ago
In theory, if the government spends by borrowing there should be less of an inflationary impact since the money is taken from the private sector and recirculated. In practice, the bonds and bills are used as collateral for new private sector loans, so the inflationary aspect is almost entirely preserved.

ckastner 3y ago

> What does a credit rating even mean for a country that prints reserve currency? The credit rating affects borrowing cost (how much interest you have to pay). When you think of the debt ceiling that the US frequently hits, somebody is buying that debt. And reserve currency or not. Printing your own money dilutes it, contributing to inflation. Edit: Forgot to say, a lot of that debt is held by U.S. tax payers and corporations. To see what effect rising interest rates have, you need to look no further than Silicon Valley Bank.