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France was downgraded to AA - by Fitch not due to recent riots per se, but rather for pretty much same reasons as USA; huge deficits along with spending problems coupled with what Fitch perceives as political gridlock. Recent riots by "Yellows" and other unions worry Fitch that M. Macron will not be able to carry out various fiscal reforms badly needed in France.
France or rather the French long have enjoyed vast and extensive social programs, pensions, work rules, etc... that the country simply can no longer afford. France indeed is famous for deficit spending. Back when there was the Franc the country could use it's currency to manipulate things, since joining the Euro that is no longer possible.
In fact up and down that line posted above at least for European nations and now USA Fitch downgraded places to AA - for similar sort of reasons.
Makes sense.
I know that southern European countries like Greece, Italy, and even Spain have struggled with soaring pension costs, massive tax evasion, and decreasing government revenues all piled on top of an aging workforce. Thus, the immigration of a younger workforce does assist to some extent until it doesn't due to the culture clashes between the immigrants and the natives.
Makes me wonder what will happen the next two years with debt ceiling put on hold. No matter how vehemently we disagree with each other in the U.S., I doubt most creditors would care if our debt load weren't so high. I think 2025 is going to tell the tale whether we get downgraded again. We have several cities I'm surprised with their problems can even get bonds sold.
This issue of a debt ceiling is one big question.
Do we let it go up continuously? Why not make it $100 Trillion? (I bet we would run up against that quickly TBH.) Or, does the government get their finances in order and try to stay below the ceiling? Considering the definition of a ceiling, the latter makes more sense to me.
Can you imagine a bank giving a private borrower a debt ceiling that keeps increasing with no point of calling in the debt?
Do we let it go up continuously? Why not make it $100 Trillion? (I bet we would run up against that quickly TBH.) Or, does the government get their finances in order and try to stay below the ceiling? Considering the definition of a ceiling, the latter makes more sense to me.
Can you imagine a bank giving a private borrower a debt ceiling that keeps increasing with no point of calling in the debt?
In 10 or 100 years our national debt will be progressively larger, assuming no loss of a major war on our soil or obliterating asteroid hit. We might not still be here, but eventually $100T at some distant point in town is inevitable as long as we stay successful as a nation.
Could this lead to the question: "What happens if nothing happens?" Maybe we are on the cusp of a new paradigm where unlimited debt is not a concern to investors, including bondholders. I think there has to be something Everyman isn't seeing in this little drama. Something we, financially, can prepare for if only we knew more.
Could this lead to the question: "What happens if nothing happens?" Maybe we are on the cusp of a new paradigm where unlimited debt is not a concern to investors, including bondholders. I think there has to be something Everyman isn't seeing in this little drama. Something we, financially, can prepare for if only we knew more.
Well maybe not unlimited meaning infinite, as there is always the potential for inflation. But anything by Mosler, Kelton or Wray will steer into some of the modern money paradigm, where federal debt and its implications are unlike personal or business debt.
Here are five countries building up their Chinese Yuan reserves in order to trade directly with China and bypass the US Dollar: Russia, Iran, Brazil, Argentina, and Bangladesh.
Two of the those are oil producers, and two are big agricultural commodity producers. It's not a dam breach yet, but those can start as trickles.
The above linked article was from May 2023. As of July, it now looks like Bolivia is joining the Chinese Yuan group. It makes sense for them since China is investing heavily in Bolivian lithium mines.
Of course, to trade with the USA these countries will still use the US Dollar, but eventually the US$:Yuan exchange rate will become a more serious geopolitical issue.
The above linked article was from May 2023. As of July, it now looks like Bolivia is joining the Chinese Yuan group. It makes sense for them since China is investing heavily in Bolivian lithium mines.
Of course, to trade with the USA these countries will still use the US Dollar, but eventually the US$:Yuan exchange rate will become a more serious geopolitical issue.
Several things.
First of all the Yuan is still not a freely floating currency. This adds more risk.
Second China still has cross border currency controls. More risk.
Third China's secretive banking, economy and inherent trust level. More risk.
And lastly - How do you think China creates enough new Yuan in the first place, and then send enough and and what speed abroad as currency, investments and debt holding paper to make all that a serious amount of global reserves?
First of all the Yuan is still not a freely floating currency. This adds more risk.
The Yuan against the Dollar is neither fixed nor freely floating. It is a managed float, being allowed to trade 2% either side every day.
Adds more risk to whom?
For Argentina: "Bypassing direct settlement in USD in bilateral trade is also advantageous for businesses to avoid exchange rate risks, while also avoiding disruptions caused by fluctuations in the USD for both parties."
The Yuan against the Dollar is neither fixed nor freely floating. It is a managed float, being allowed to trade 2% either side every day.
Adds more risk to whom?
For Argentina: "Bypassing direct settlement in USD in bilateral trade is also advantageous for businesses to avoid exchange rate risks, while also avoiding disruptions caused by fluctuations in the USD for both parties."
A managed currency might be good or less risky for one party (China), not so good for another.
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