Every time the U.S. credit rating becomes a topic of discussion – as it did when Fitch unexpectedly downgraded it this week – it presents an opportunity to delve into the interplay between money, debt, and influence, as well as to contemplate how Bitcoin and cryptocurrencies might disrupt these dynamics.
To begin with, it's important to acknowledge that although a downgrade signifies a somewhat weaker projection for the U.S. government's finances, the chances of an actual default by the U.S. are highly improbable, despite the occasional talk of a "technical default" due to the Congressional game of debt-ceiling-chicken. Countries that borrow in their own currency seldom fail to make debt payments in the nominal sense since they possess the ability to simply print money to fulfill their repayments.
Certainly, issuing money to repay debts does not absolve governments of their obligations. This practice leads to a depreciation of the exchange rate and a decrease in the currency's purchasing power due to inflation, effectively imposing a kind of tax on both domestic citizens and foreign lenders. As a result, confidence among international investors is eroded, and mistrust grows among taxpayers, triggering a self-perpetuating cycle of plummeting exchange rates and escalating prices.
In principle, these adverse economic consequences are expected to discourage governments from resorting to expansive monetary policies as a means to address their debts. However, this assumption relies on the presence of democratic accountability. Contrary to this notion, the international debt markets indicate that creditors assess and treat different governments differently based on this factor. A significant number of emerging-market governments in Latin America, Asia, Africa, and Eastern Europe face limitations in issuing debt in their own currencies due to the insistence of foreign lending institutions on imposing exorbitant interest rates that surpass their financial capacity. As a result, they are compelled to opt for foreign currency-denominated bonds, with the US dollar being the primary choice.