The Growing Apprehension of the Inflating Fiscal Put

For the years following the Lehman crisis, the Fed put was the norm. Exceptionally loose monetary policy ensured risk assets had a safety net. But central banks were unable to rehabilitate the real economy while governments kept their belts tight.

That belt began to loosen in the years leading up to the pandemic and then snapped altogether during it. The fiscal and monetary policy were [then] working hand-in-glove…[and] the full force of monetary expansion was realized.

The pandemic and its effects have now largely faded, but the fiscal deficits remain. With economies now more reliant on government spending, and the electorate’s ever-higher expectations of what their governments should shield them from – job loss, ill health, high energy prices, even death – it is becoming increasingly difficult to see how sovereigns can rein deficits back into pre-pandemic norms any time soon.

~ Simon White, Bloomberg, July 2023

The US was stripped of its top-tier sovereign credit rating by Fitch Ratings, echoing a move made more than a decade ago by S&P. The credit assessor downgraded the US from AAA, a ranking the nation has held at Fitch since at least 1994, according to data compiled by Bloomberg. The move comes in the wake of major political battles over the nation’s borrowing and repeated standoffs over raising the debt limit. While the most recent legislative impasse was resolved, it remains a potential issue of concern going forward.

“The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA-rated' peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions,” Fitch said in a statement.

~ Bloomberg, August 1, 2023

Afloat and Aloft, Until the Air Lets Out

Afloat and Aloft, Until the Air Lets Out