Last time this happened (around 2008 crisis) didn't that ultimately led to more capital flowing into US? II(vaguely)RC it was a signaling that a big downturn is ahead and that unpredictably meant lots of capital found safe haven in US assets. in retrospect that may be because European banks were in even worse condition and more leveraged than US. IDK what the situation is currently but major international markets like UK/Japan/China all seem distressed at the moment.
So IDK what the material impact for this downgrade ends up being but it does not seems like a big deal.
The republicans have signaled that they intend to get back to government shutdown bullshit.
The dumber members of the caucus seem to have power, so the chances of some kind default are higher. They really want a downturn to help their election chances, and are dismayed that the economy has done well.
problem is not that republican politicians do this shady sh*t. problem is that their voter base just dont care besides that narrow specific thing they care about. IMO this is the big power of team-Red, its an OR of all favorable narratives.
Republican politics, in its current form, is a cult. It’s literally the only plausible explanation for Trump still being their front running presidential candidate.
Yes, a recent Money Stuff (covering the rumoured/leaked/mentioned indication this may happen) gave that example. It does seem to make it a bit meaningless, because what can you do? They could make it BBB- (or BBb or whatever they use) and still nobody would actually be concerned about their US treasuries. It's a bit weird. I suppose Fitch et al. have to be seen to be following a process.
that makes me wonder if US treasuries get labelled below AAA then would that mean (some) pension funds may not invest in them. I think some have obligations to invest only in AAA. but of course we are long way from that as all 3 rating agencies would have to downgrade & thats not happening until default is in rear view mirror.
He covered exactly that (and again today on this news: https://www.bloomberg.com/opinion/articles/2023-08-02/the-us..., it's free by email but I think unfortunately no (legitimate/non-archive) way to find old columns for free if you weren't subscribed at the time):
> When we last talked about this in May, I looked at various rules — for money market funds, for Federal Reserve collateral, for cleared derivatives margin, for bank and insurance capital — until I got bored; all of them say that Treasuries are Treasuries, that they are treated as about as risk-free as it gets, without any reference to ratings. [...] If you have that trade, please email me! If you were allowed to hold Treasuries when they were rated AAA (by Fitch), but not now that they are rated AA+ (by Fitch), I would love to hear about it. But I don’t think there are a lot of those people out there.
So IDK what the material impact for this downgrade ends up being but it does not seems like a big deal.