America’s Fiscal Time Bomb Ticks Even Louder
“Everybody who reads the newspaper knows that the United States has a very serious long-term fiscal problem.”
That wasn’t a quote by some financial talking head in the aftermath of Fitch’s downgrade of America’s credit rating on Tuesday. It was a reaction by then Chairman of the Federal Reserve Ben Bernanke the last time a major rating agency took that action back in August 2011.
Investors could google hundreds of such warnings over the decades and conclude that the hand wringing is best ignored or even viewed as a buying opportunity.
Investors are drawing false comfort from the past and from the perception that fiscal scolds have cried wolf so often.
The U.S. borrows in its own currency and will never actually default involuntarily as long as it has a printing press.
As rising rates push that financing need higher, though, the ability of the U.S. government to change the fiscal path without politically disastrous measures like cutting entitlements or by overtly printing money is becoming more limited.
Even worse, losing that room for maneuver could also make responding to the next crisis, whether it is financial, health or military in nature, more than a matter of Uncle Sam whipping out his checkbook.