Who benefits from a downgrade?
Jul. 29th, 2011 08:56 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
snousleMy take on the debt limit drama: Nowadays, the biggest problem for people with significant net worth is low interest rates. With rates so low, it's kind of hard to take wads of cash and turn it into more cash. Investment accounts are returning fractions of a percent interest. This is a big drain on the cash flow of wealthy individuals, who are used to their wealth generating 6-10% a year.
Provoking a crisis that downgrades the fed's credit rating will most likely raise interest rates. Possibly into double-digit territory. This would shift hundreds of billions, possibly as much as a trillion dollars, out of the pockets of people who have debt and into the pockets of people who have lots of assets. In particular, it would be a gigantic give-away to the Chinese, who are probably not happy with the low yield they get from their treasury bonds these days. In the event that the government's bills can't all be paid, reports of the Treasury "sending money overseas" while Americans go unpaid would be used to bludgeon the Obama administration, while ignoring the fact that the government is constitutionally bound to prioritize treasury bond payments over everything else.
It seems likely that the wealthiest Americans have already positioned themselves to financially benefit from the crisis. I can't think of any other good explanation for the behavior of the tea partiers in Congress.
Provoking a crisis that downgrades the fed's credit rating will most likely raise interest rates. Possibly into double-digit territory. This would shift hundreds of billions, possibly as much as a trillion dollars, out of the pockets of people who have debt and into the pockets of people who have lots of assets. In particular, it would be a gigantic give-away to the Chinese, who are probably not happy with the low yield they get from their treasury bonds these days. In the event that the government's bills can't all be paid, reports of the Treasury "sending money overseas" while Americans go unpaid would be used to bludgeon the Obama administration, while ignoring the fact that the government is constitutionally bound to prioritize treasury bond payments over everything else.
It seems likely that the wealthiest Americans have already positioned themselves to financially benefit from the crisis. I can't think of any other good explanation for the behavior of the tea partiers in Congress.
