I’m a United States citizen. Moody gives the US a AA+ credit rating (it was downgraded from AAA in 2011).
How can this be, despite the substantial amount of debt the US holds that only continues to grow?
Is it GDP, defense capabilities, the dollar being the de facto currency almost worldwide? A combination of these? Or is there another huge factor(s) I am missing?
In: 54
National debt is, almost, like personal debt in the sense that if you pay your debt on time every time, you will be deemed worthy of more credit in the future. Hence your credit will rating will go up.
This is extremely simplified but is in essence a major factor.
National debt is, almost, like personal debt in the sense that if you pay your debt on time every time, you will be deemed worthy of more credit in the future. Hence your credit will rating will go up.
This is extremely simplified but is in essence a major factor.
The govts relationship with the word “debt” is very different to yours or mine. This is on account of the fact that the govt creates the money needed to pay its debts. And they do this ALL the time.
Think of where money comes from. Its a human construct – we dont dig it up out the ground like a commodity, so someone has to have created all the money in circulation. That someone is the govt. Every time a govt spends, it does so through new money creation. Not tax. Not borrowing. Creation of new money. Indeed, there is no mechanism within the central bank to spend any other way.
Once the govt spends its new money, it then taxes back some of it in order to control inflation, control behaviour (taxes on alcohol, fuel, cigarettes etc), and make more fiscal space for further spending.
The national debt is the sum total of every unit of currency spent by the govt and not yet taxed back. It is nothing to be worried about and will continue to rise indefinitely.
I hugely recommend picking up The Deficit Myth by Stephanie Kelton. It tackles this topic in a really easy to understand way and lays waste to many of the myths surrounding the money system.
Also, ive deliberately chosen not to specify dollars, pounds, or any other currency in my post, because regardless of where you are, this is how things work for a currency issuing govt.
The U$D is the least bad currency in the world, so everyone wants it, and the Federal Reserve controls it’s printer.
The govts relationship with the word “debt” is very different to yours or mine. This is on account of the fact that the govt creates the money needed to pay its debts. And they do this ALL the time.
Think of where money comes from. Its a human construct – we dont dig it up out the ground like a commodity, so someone has to have created all the money in circulation. That someone is the govt. Every time a govt spends, it does so through new money creation. Not tax. Not borrowing. Creation of new money. Indeed, there is no mechanism within the central bank to spend any other way.
Once the govt spends its new money, it then taxes back some of it in order to control inflation, control behaviour (taxes on alcohol, fuel, cigarettes etc), and make more fiscal space for further spending.
The national debt is the sum total of every unit of currency spent by the govt and not yet taxed back. It is nothing to be worried about and will continue to rise indefinitely.
I hugely recommend picking up The Deficit Myth by Stephanie Kelton. It tackles this topic in a really easy to understand way and lays waste to many of the myths surrounding the money system.
Also, ive deliberately chosen not to specify dollars, pounds, or any other currency in my post, because regardless of where you are, this is how things work for a currency issuing govt.
The govts relationship with the word “debt” is very different to yours or mine. This is on account of the fact that the govt creates the money needed to pay its debts. And they do this ALL the time.
Think of where money comes from. Its a human construct – we dont dig it up out the ground like a commodity, so someone has to have created all the money in circulation. That someone is the govt. Every time a govt spends, it does so through new money creation. Not tax. Not borrowing. Creation of new money. Indeed, there is no mechanism within the central bank to spend any other way.
Once the govt spends its new money, it then taxes back some of it in order to control inflation, control behaviour (taxes on alcohol, fuel, cigarettes etc), and make more fiscal space for further spending.
The national debt is the sum total of every unit of currency spent by the govt and not yet taxed back. It is nothing to be worried about and will continue to rise indefinitely.
I hugely recommend picking up The Deficit Myth by Stephanie Kelton. It tackles this topic in a really easy to understand way and lays waste to many of the myths surrounding the money system.
Also, ive deliberately chosen not to specify dollars, pounds, or any other currency in my post, because regardless of where you are, this is how things work for a currency issuing govt.
Nations are different from people. The US prints money. You will always get your debt paid, because the US will just print enough money to pay you, and there’s no conceivable way you would ‘refuse’ that payment. If you refused, they would laugh at you, and if you tried to force them, well you’d have to fight the US army.
Now, if Zimbabwe owed you say, 100 billion US dollars, there’s a pretty decent chance you would not accept the Zimbabwe currency they printed to pay you, as you might doubt your ability to exchange that 100 billion Zimbabwe currency to US dollars. If you were a powerful nation and Zimbabwe owed that money, you might even declare war to force them to pay.
So a nation’s debt it is strongly tied to whether they control a currency and if so, if people will accept it. It’s also tied to whether they can force you to accept the payment.
Nations are different from people. The US prints money. You will always get your debt paid, because the US will just print enough money to pay you, and there’s no conceivable way you would ‘refuse’ that payment. If you refused, they would laugh at you, and if you tried to force them, well you’d have to fight the US army.
Now, if Zimbabwe owed you say, 100 billion US dollars, there’s a pretty decent chance you would not accept the Zimbabwe currency they printed to pay you, as you might doubt your ability to exchange that 100 billion Zimbabwe currency to US dollars. If you were a powerful nation and Zimbabwe owed that money, you might even declare war to force them to pay.
So a nation’s debt it is strongly tied to whether they control a currency and if so, if people will accept it. It’s also tied to whether they can force you to accept the payment.
The U$D is the least bad currency in the world, so everyone wants it, and the Federal Reserve controls it’s printer.
The U$D is the least bad currency in the world, so everyone wants it, and the Federal Reserve controls it’s printer.
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