When S&P did this back in 2011, the DoJ opened an investigation in to them (regarding their activities in mortgage backed securities), and the CEO resigned pretty quickly as well.
It's amusing, but also intuitive? When we have companies larger than countries, operating globally, it sort of stands to reason they should be safer bets than any one country - just like selling mortgages to thousands vs. a massive one to one person, or anything else in finance.
This is just so unbelievably short sited. A country is massively different than a company. A country has the force of law, it has the right to use deadly force when threatened, it can print money, seize assets, tax citizens, jail people, expel people.
Like this isn’t just about money and how much you make, that’s what a company is, a country is life or death, peace and prosperity or war and famine.
The statement was that large companies should be “safer” because they are globally diverse, which completely ignores the fact that government and companies are apples and oranges. As long as you are borrowing in the currency you own, you can print money to pay that debt off, maybe it happens like Weimar Germany where you trigger a painful bought of hyperinflation, but the debt gets paid and there is no default. There is not a company in existence that can say the same thing
I don't really follow what you think I was implying - that we should somehow make ourselves stateless subjects of big tech? - but I assure you I wasn't.
I don't recall any instances of Microsoft hitting a "debt ceiling" and ceasing payments to employees and other parties on a regular basis every few years. Twitter might be a better comparison.
Can it? According to the constitution, specifically Ammendment XIV, "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." Does that mean the US cannot legally default on its debts?
I think even if you’re right in theory (which I believe you are), the problem is in getting the Supreme Court to agree. And even if they do, by the time the issue makes its way through the courts, the damage would already be have done.
Except the problem is that Congress has already authorized the spending.
What it hasn’t authorized is how the executive should raise the money Congress has told it to spend.
There is no limit on government borrowing besides the debt limit which comes very directly in conflict with the U.S. government’s constitutional mandate to pay its debts.
In nearly every other country the constitution would very clearly supersede the debt limit congress has created, but it’s not clear whether that’s a reliable heuristic in the U.S.
Ideally they are a paired activity, but issuing debt can be done with no corresponding spending. And spending can be done with no corresponding (exactly) debt or taxes.
And taxes are gathered by the executive, and the amount of taxes actually gathered is also independent of either body (as they’re a function of tax rules and executive effectiveness * economic activity, etc.).
You are correct, the government cannot default on its debts (assuming they were legally authorized). Justin Amash recently wrote a very helpful blog post [0] about the debt and this is his interpretation of the amendment. Recommend reading the whole thing but the most relevant portion would be myth #4.
In theory, the US government would never go bankrupt as long as they can print more money. Which they always can, the dollar isn’t backed by gold anymore.
Only because they have unilateral control over their financial matters. If Microsoft could only spend whenever Apple approved of their spending, things would look quite different don't you think?
Eh, Congress, The Executive, and the Judiciary are all in the same government. All are ultimately accountable to the will of the people (who will, if pushed hard enough, hang them all - or find someone willing to do it for them).
Letting folks be convinced otherwise is exactly how we got in this situation.
Everyone who has worked in a large corp has experienced finance refusing to pay for something unless you jump through some specific hoop.
Many have experience with budgets being curtailed (despite earlier promises), bosses having to kiss up to the finance folks to get PO’s paid, etc.
And dealing with executive infighting, or having to appease investors or shareholders, etc.
The issue we’ve got is folks have been convinced that this isn’t us trying to all work together and find a compromise we can all agree on (even if we’re not happy with it), but rather an us vs them zero sum game of annihilation. And the latter is an extremely dangerous mindset to be in, but beneficial to specific types of predators.
If a companies shareholders were somehow convinced that the CFO should just not pay due bills or payroll unless the CEO caved on his pet project, we’d see the same thing. Except outside forces would intervene pretty quickly, and you’d have to be insanely dumb as a shareholder to think it was going to end any other way.
The US has nukes and the most effective military in the world (near as anyone can tell), ain’t no one want to get involved in that…. Except folks who already are our enemies, anyway.
Sure, if they want 50,000 agitated IT workers to storm Redmond and slay them and put their families' heads on a row of pikes outside of microsoft headquarters, they could do that.
Also, Microsoft doesn’t owe the majority of its debt to its own shareholders.
Further, Microsoft doesn’t have the legal right to demand their shareholders and every employee etc hand over any money Microsoft asks them to hand over, if it really wants to pay off its debts.
The investigation began well before the cuts. And the investigation would have happened anyways because in 2011 the House had completed an investigation which pointedly called out the ratings agencies.
And the big problem with the cut was it made no sense. Which was evident from the fact that the US continued to enjoy nearly a decade more of sustained borrowing at nearly 0 rates and the cut itself had no impact.
Last time this happened (around 2008 crisis) didn't that ultimately led to more capital flowing into US? II(vaguely)RC it was a signaling that a big downturn is ahead and that unpredictably meant lots of capital found safe haven in US assets. in retrospect that may be because European banks were in even worse condition and more leveraged than US. IDK what the situation is currently but major international markets like UK/Japan/China all seem distressed at the moment.
So IDK what the material impact for this downgrade ends up being but it does not seems like a big deal.
Yes, a recent Money Stuff (covering the rumoured/leaked/mentioned indication this may happen) gave that example. It does seem to make it a bit meaningless, because what can you do? They could make it BBB- (or BBb or whatever they use) and still nobody would actually be concerned about their US treasuries. It's a bit weird. I suppose Fitch et al. have to be seen to be following a process.
that makes me wonder if US treasuries get labelled below AAA then would that mean (some) pension funds may not invest in them. I think some have obligations to invest only in AAA. but of course we are long way from that as all 3 rating agencies would have to downgrade & thats not happening until default is in rear view mirror.
He covered exactly that (and again today on this news: https://www.bloomberg.com/opinion/articles/2023-08-02/the-us..., it's free by email but I think unfortunately no (legitimate/non-archive) way to find old columns for free if you weren't subscribed at the time):
> When we last talked about this in May, I looked at various rules — for money market funds, for Federal Reserve collateral, for cleared derivatives margin, for bank and insurance capital — until I got bored; all of them say that Treasuries are Treasuries, that they are treated as about as risk-free as it gets, without any reference to ratings. [...] If you have that trade, please email me! If you were allowed to hold Treasuries when they were rated AAA (by Fitch), but not now that they are rated AA+ (by Fitch), I would love to hear about it. But I don’t think there are a lot of those people out there.
The republicans have signaled that they intend to get back to government shutdown bullshit.
The dumber members of the caucus seem to have power, so the chances of some kind default are higher. They really want a downturn to help their election chances, and are dismayed that the economy has done well.
problem is not that republican politicians do this shady sh*t. problem is that their voter base just dont care besides that narrow specific thing they care about. IMO this is the big power of team-Red, its an OR of all favorable narratives.
Republican politics, in its current form, is a cult. It’s literally the only plausible explanation for Trump still being their front running presidential candidate.
This rating is just an opinion of some organization. I have an opinion too: I think the US government has a credit rating of AAA.
Why?
- The US government can produce as much currency as it needs to because it's a sovereign country. Hence, there is not immediate risk of default.
- And even if the US government couldn't produce any more dollars, there are plenty of other ways to get hold of the circulating dollars. After all, Congress can pass laws to raise taxes, seize assets, etc.
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[ 2.9 ms ] story [ 99.8 ms ] threadIt was probably updated later.
It would take many more cracks in the edifice to make them subject to typical market pressures.
There may be a lot of issues with the US government’s issuance of debt but a lack of market pressure isn’t one of them.
Fun fact: Microsoft has a higher credit rating from S&P (AAA) than the US government (AA+) - https://www.microsoft.com/en-us/investor/faq.aspx
(Fitch withdrew their MSFT rating at the start of the year, but it was also AAA)
Like this isn’t just about money and how much you make, that’s what a company is, a country is life or death, peace and prosperity or war and famine.
JFC…
- The worlds largest military budget
- More aircraft carriers and aircraft than the rest of the world combined
- Is also not nuclear armed (and the only folks to actually nuke anyone in anger)
- Their own printing presses for the worlds reserve currency
- Sovereignty over the rating agencies physical location.
The 14th does not override Congress' authority to tax and spend ... or not spend. Article I, Section 8.
What it hasn’t authorized is how the executive should raise the money Congress has told it to spend.
There is no limit on government borrowing besides the debt limit which comes very directly in conflict with the U.S. government’s constitutional mandate to pay its debts.
In nearly every other country the constitution would very clearly supersede the debt limit congress has created, but it’s not clear whether that’s a reliable heuristic in the U.S.
Only Congress can raise money through spending bills.
Ideally they are a paired activity, but issuing debt can be done with no corresponding spending. And spending can be done with no corresponding (exactly) debt or taxes.
And taxes are gathered by the executive, and the amount of taxes actually gathered is also independent of either body (as they’re a function of tax rules and executive effectiveness * economic activity, etc.).
[0] https://justinamash.substack.com/p/the-debt-ceiling-isnt-wha...
In theory, the US government would never go bankrupt as long as they can print more money. Which they always can, the dollar isn’t backed by gold anymore.
https://www.businessinsider.com/morgan-1895-crisis-and-1862-...
Now that dollar is fiat, there would be no reason for US to go bankrupt. New unbacked dollars can be issued.
Letting folks be convinced otherwise is exactly how we got in this situation.
Everyone who has worked in a large corp has experienced finance refusing to pay for something unless you jump through some specific hoop.
Many have experience with budgets being curtailed (despite earlier promises), bosses having to kiss up to the finance folks to get PO’s paid, etc.
And dealing with executive infighting, or having to appease investors or shareholders, etc.
The issue we’ve got is folks have been convinced that this isn’t us trying to all work together and find a compromise we can all agree on (even if we’re not happy with it), but rather an us vs them zero sum game of annihilation. And the latter is an extremely dangerous mindset to be in, but beneficial to specific types of predators.
If a companies shareholders were somehow convinced that the CFO should just not pay due bills or payroll unless the CEO caved on his pet project, we’d see the same thing. Except outside forces would intervene pretty quickly, and you’d have to be insanely dumb as a shareholder to think it was going to end any other way.
The US has nukes and the most effective military in the world (near as anyone can tell), ain’t no one want to get involved in that…. Except folks who already are our enemies, anyway.
Further, Microsoft doesn’t have the legal right to demand their shareholders and every employee etc hand over any money Microsoft asks them to hand over, if it really wants to pay off its debts.
And the big problem with the cut was it made no sense. Which was evident from the fact that the US continued to enjoy nearly a decade more of sustained borrowing at nearly 0 rates and the cut itself had no impact.
So IDK what the material impact for this downgrade ends up being but it does not seems like a big deal.
> When we last talked about this in May, I looked at various rules — for money market funds, for Federal Reserve collateral, for cleared derivatives margin, for bank and insurance capital — until I got bored; all of them say that Treasuries are Treasuries, that they are treated as about as risk-free as it gets, without any reference to ratings. [...] If you have that trade, please email me! If you were allowed to hold Treasuries when they were rated AAA (by Fitch), but not now that they are rated AA+ (by Fitch), I would love to hear about it. But I don’t think there are a lot of those people out there.
The dumber members of the caucus seem to have power, so the chances of some kind default are higher. They really want a downturn to help their election chances, and are dismayed that the economy has done well.
Why?
- The US government can produce as much currency as it needs to because it's a sovereign country. Hence, there is not immediate risk of default.
- And even if the US government couldn't produce any more dollars, there are plenty of other ways to get hold of the circulating dollars. After all, Congress can pass laws to raise taxes, seize assets, etc.