Fitch’s recently downgraded U.S. Treasuries from AAA to AA+, a notable decrease in credit rating that has raised eyebrows throughout the nation and around the world.
This downgrade is concerning news, especially for those who are planning on making a large purchase soon – such as purchasing a new car. The U.S. Government borrows enough money each day to buy roughly 82,000 cars, so it is natural to be worried about their decreased credit score.
Investment mogul Warren Buffett weighed in on this issue, speaking out during an interview on Thursday where he stated that his firm Berkshire had bought $10 billion worth of U.S Treasuries last Monday and plans to do so again this coming Monday with no hesitation or doubt about their investment choice – “the only question for next Monday is whether we will buy $10 billion in 3-month or 6-month” (Buffett).
He went on to say that despite Fitch’s downgrade, everybody knows the dollar remains the reserve currency of the world and is still backed by immense amounts of international wealth – currently estimated at around $9 trillion held by foreigners alone (Uzunoglu).
On its face, Buffett’s statement may lead one to believe there is nothing to worry about when it comes to our current financial situation; however, being rich and careful are not always synonymous – unless your name is Warren Buffett – which means that we should take into consideration what he said as well as what he did not say before continuing with business as usual without any forethought or contemplation of consequences.
It seems likely that Buffett believes short-term Treasury debt investments are safe due to our status as reserve currency, however, this does not mean we should continue borrowing money recklessly without thought of consequences or repayment strategy.
In fact, during past interviews, Buffett proposed a law wherein members of Congress would not be eligible for re-election if deficits exceeded three percent of GDP (Gimbel).
Currently, Congressional Budget Office projections suggest federal deficits will approach six percent annually over the next decade – twice Buffet’s threshold number for firing Congress – without even considering any major recessions or other crisis situations (CBO). This could result in total debt levels reaching near double our GDP by 2053; meaning interest payments could exceed national defense spending budgets (CBO).
Although Fitch’s downgrade does not indicate an imminent default situation for the U.S., it does serve as a warning sign regarding our lack of dependability from a financial perspective and poses questions regarding potential loss of status as reserve currency going forward which could create catastrophic inflationary scenarios with devastating employment implications both domestically and abroad..
For these reasons, it would behoove us all to take cues from Mr. Buffet’s cautionary words rather than blindly following his lead when deciding how to best move forward financially in light of Fitch’s recent assessment and prepare ourselves accordingly just in case there really is a bear chasing us down the trail after all.