Economic News | Moodys downgrades U.S. Debt Rating

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The Debt Is About to Matter Again​

When interest rates outpace growth, very bad things can happen.

🎁 —> The Debt Is About to Matter Again


“… The debt, according to these economists, still mattered. But whether it would become a serious problem, they observed, depended not on how big and scary the number was (about $28 trillion at the time, and today closer to $36 trillion), but instead on a simple formula involving the variables r and g. As long as a country’s economic growth rate (g) is higher than the interest rate (r) it pays on its national debt, then the cost of servicing that debt will remain stable, allowing the government to roll it over indefinitely without much worry. Given that interest rates had been close to zero for a decade, Furman and Summers concluded that the “economics of deficits have changed” and called on Washington to “put away its debt obsession and focus on bigger things.”

But what was true then is true no longer. The combination of Donald Trump’s growth-inhibiting tariff crusade and the GOP’s deficit-exploding tax bill is likely to push the relationship between r and g into extremely dangerous territory. “In a short amount of time, the fiscal picture has gone from comfortably in the green-light region to the red-light region,” Summers recently told me. In other words, now would be a very good time for Washington to bring back its debt obsession.…”
 
ColdBlueSteel said:
Thanks, but is that all we’ve got on why this is bad? Was expecting a little more substance from the board that knows for sure what’s best for everybody and everything.
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The transaction itself isn't bad. Two things about it stand out:

1. It's precisely the opposite of what Trump has been thumping on the campaign trail. Usually in these sorts of deals, the foreign buyer reduces production in the acquired US plant and fills the demand with the more profitable production at home.

2. Why did Trump greenlight it after a long delay? You think maybe it was because he was waiting for the check to clear, so to speak. I mean, Trump is doing corruption in the open. He pardons anyone doing corruption. It seems that he simply does not think corruption is bad. He calls it smart.

So even if the deal is good on the merits (and I have no opinion on whether it is "good" although it does help my portfolio), the presumptive corruption makes it bad.

Does that help?
 
ColdBlueSteel said:
Thanks, but is that all we’ve got on why this is bad? Was expecting a little more substance from the board that knows for sure what’s best for everybody and everything.
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I think the concern is that a foreign country will control the U.S. steel industry, potentially limiting us in time of war. Steel workers had argued that the company would potentially go bankrupt if not allowed to merge with Nippon.
 
uncleradar said:
I think the concern is that a foreign country will control the U.S. steel industry, potentially limiting us in time of war.
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Exactly. Literally Trump (and Biden before him) put restrictions on steel imports because they didn't want the US to be dependent on foreign suppliers. So for Trump to authorize this transaction, it goes against everything he's been saying. Usually, when someone says A and does A and then for some unexplained reason does the opposite of A, there's a payoff under the table involved. Trump being Trump, he could just be incoherent but I suspect there were bribes paid.
 
superrific said:
Exactly. Literally Trump (and Biden before him) put restrictions on steel imports because they didn't want the US to be dependent on foreign suppliers. So for Trump to authorize this transaction, it goes against everything he's been saying. Usually, when someone says A and does A and then for some unexplained reason does the opposite of A, there's a payoff under the table involved. Trump being Trump, he could just be incoherent but I suspect there were bribes paid.
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Reads like the payoff may be in the form of investment, modernization, technology transfer, stronger competitiveness (against China), and stronger US-Japan relations.
 
ColdBlueSteel said:
Reads like the payoff may be in the form of investment, modernization, technology transfer, stronger competitiveness (against China), and stronger US-Japan relations.
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None of that. Maybe the US Japan relationship, but:

1. Asset purchases are not investments in productive capacity. It's only an investment-promoting deal if it leads to more investment in actual US plants than would have otherwise occurred.

2. Modernization and technology transfer? These are steel mills, not chip fabs. I know, milling isn't without its technology, but it's also an incredibly mature industry and the mill tech doesn't move that fast.

3. Stronger competitiveness is not actually a thing. That's the sort of bullshit that every corporate merger team promises, when they can't come up with any actual benefits. There is no reason why (Nippon + US Steel) should be more competitive than (Nippon) + (US Steel).
 
ColdBlueSteel said:
…the board that knows for sure what’s best for everybody and everything.
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Rich, coming from one of the MAGA crowd.
“I alone can fix it.” Who said that? Was it the same person who is dragging what was the strongest economy in the world four months ago into a place where economists are predicting recession and stagflation?
I don’t know everything, but I certainly know what Trump is doing to our economy isn’t good. Is there even one Trump voter who can see it? Is there even one Trump voter who thinks they don’t know more than every expert in every field in existence?
 
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