Fitch Ratings placed the United States on negative watch which suggest a possible downgrade in the coming months . Specifically, the “Long-Term Foreign-Currency Issuer Default Rating” component which is currently rated AAA risks being lowered by two notches to AA . The New York rating agency cites intensifying political partisanship hindering the timely raising of the debt ceiling as the primary reason for concern .
Implications of Debt Ceiling and Potential Default on US Obligations
Fitch acknowledges the likelihood of the debt ceiling being raised in time but highlights the risk of the US government potentially defaulting on certain obligations . The United States reached its debt limit of $31 .4 trillion in January 2023 and while accounting tricks have provided temporary relief there will be no recourse from June 1, 2023 . This raises concerns about the potential default on financial obligations .
Rising Public Debt and Increasing Debt Service Costs
Fitch notes that US public debt reached 112 .5% of GDP by the end of 2022 significantly surpassing the median of 36% for AAA-rated countries . Another worry is the increase in debt service costs with interest rates rising to around 3 .7% for the 10-year rate compared to 2 .8% a year ago . The Congressional Budget Office (CBO) projects a budget deficit of $2 .7 trillion in 2033, further exacerbating the financial situation .
Inflation Concerns and the Role of Bitcoin as a Store of Value
Amidst the discussion on debt default it is essential to consider that public debt cannot be simply repaid . Instead it will be paid with new debts which leads to increased inflation . This inflation primarily benefits those who own assets such as shares of multinationals, prestigious real estate, artwork or collector cars which are inaccessible to those with limited financial means . On the other hand bitcoin, known as the best store of value humanity has seen for some can be acquired with as little as 10 euros . Saving in bitcoin is seen as a crucial means of protection against the looming hyperinflation .
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