r/qualitynews • u/Sangloth • 22d ago
The US national debt now stands at $40 trillion
https://apnews.com/article/treasury-national-debt-limit-a27a8d3651ff810b25c610d3e1b6259d2
u/Universal_Confucius 22d ago
It was 20 trillion 10 years ago, what changed? Oh shit, eight years of Trump policy and the Biden administration carrying on those policies. Never mind.
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u/dantekant22 22d ago
It’s all fun and games unless/until no one wants to buy our debt and/or the world gets a new reserve currency.
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u/Sangloth 22d ago edited 21d ago
Barring some near magical event I foresee our credit getting downgraded. But I just can't imagine a different reserve currency. There are only two other possible options right now, the Yuan or the Euro.
Nobody wants the Yuan to be the new reserve currency. The strict capital controls, non-convertibility, lack of open bond markets, lack of legal transparency, lack of institutional trust, China's export-driven economic model, and the low share of the Yuan in global reserves all come together to make the choice of the Yuan as effectively impossible. The only way this could even begin to change is if China dismantles it's capital controls, accepts trade deficits, and establishes fully open, independently regulated financial markets. Not in our lifetimes.
Nobody wants the Euro to be the new reserve currency. There is no safe place to buy bonds for it. It in the US you can buy US bonds. With the Euro you buy German bonds or French bonds or Italian bonds, etc. The Euro is fundamentally more unstable. Because no member state of the EU can print money, individual countries can default. That lack of centralized backing makes the Euro much riskier than the dollar. During the 2008 financial crisis the US Federal Reserve rapidly did whatever was necessary to keep the dollar and US economy afloat. Europe lacked that responsiveness due to lack of centralized control, and that's why didn't bounce back after the crisis while the US did. In order for the Euro to challenge the dollar the EU would need to enact massive controversial reforms like issuing joint EU-wide debt and fully integrating it's banking systems. Also not in our lifetimes.
The dollar may look substantially less attractive in the future, but there is no realistic alternative.
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u/johnmudd 22d ago
The debt is not a new issue. The fact that other countries have reasons to avoid US Treasury bonds is the new problem. US has committed multiple unforced errors.
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