“For years, we lived in a world where there was basically zero risk premium on U.S. debt,” Jared Bernstein, the former head of Joe Biden’s Council of Economic Advisers, told me.
“In four short months, Team Trump has squandered that advantage.”
“For years, we lived in a world where there was basically zero risk premium on U.S. debt,” Jared Bernstein, the former head of Joe Biden’s Council of Economic Advisers, told me.
“In four short months, Team Trump has squandered that advantage.”
There’s a historical reason for it, but much of the financial press isn’t thinking about how it’s different this time.
A bunch of debt rating outlets downgraded the US in the wake of the 2008 financial crisis. Everyone said “eh” for a simple reason: where else were you going to go? Everyone’s economy was slagging. Many countries tried austerity measures, particularly in the EU, but that didn’t work. The US was the best of limited options for a low-risk/low-returns portfolio piece (which is what bonds are), and the downgrade just didn’t matter.
Trouble this time is that it’s obvious to everyone that the US has created the current situation for itself. Things weren’t great for average people before, but you could gussy up the numbers and say things are fine if you didn’t look too hard at the details. It now threw away the ability to do that. Nobody else is doing that, because it’s dumb as fuck.
So now you get a bond rating downgrade when nobody else has that problem. Suddenly, it matters. The financial press isn’t used to this situation and hasn’t had to deal with the obvious yet.