the, the hello and welcome to the the loves the whole robin, the credit score of the world's biggest a call to be done great at the rate of agency, fitch size it evaluated several factors before. lowering america's school from aaa to double a plus. but the core of the issue is spending, which many se is out of control. political divisions also weighed heavily. so will this downgrade sway investors? what impact will it have in washington? yeah, before the next us presidential election, we'll get to those issues with all guess in a moment. but 1st this report by category lopez hold on and it's not the assessment the us government was hoping for. but the reading agency, such as defending this decision to downgrade america's credit score from triple 8 to double 8 plus it says washington has a major spending problem. it hasn't managed to control. most analyst agreed,

let's say the downgrade hurts the us treasury ego. more than the economy, the way i've described it to our clients is that if i was a pilot of an airplane and you are the passenger, it's going to get very bumped be put on your seat belt, but the airplane is not going to crash. we're still going to get to our destination, which i think will be higher than it is today, both the s and p and the del majority. leaders are the reasons for the downgrade, include, which, which describes as an erosion of government, including consensus last minute, congressional debates in june over the $32.00 trillion dollar debts. the attack on the capital 2 years ago didn't help with any sliding between democrats and republicans. brewing for years, analysts say, is now reached a boiling point, and we are polarized, where is polarized as we've ever been. we will know that between the democrats, republicans, we can't seem to reach agreement on anything. investors look at credit ratings to

evaluate their own investments and assess risk. the us treasury secretary janet deal and launched this attack stitches decision is puzzling in light of the economic strength we see in the united states. i strongly disagree with fits his decision and i believe it is entirely unwarranted. while a double a pos credit score is still considered very good, summit investors say that sound great inevitably leaves the financial tent, particularly ahead of the us presidential election next year. katia, a little bit with the yen for insights story. the. well, let's spring in august. william lee's, the chief, told us that the american non profit thing time the milking institute and he's with us live from henderson in nevada, from china capital and the tongue of

a senior fellow at the beijing base piece and development thing. tongue thought he instituted. he's also a full moon investment bank and in rochester, in england, francisco economist and thinking commentators she read the book, the people's case, quantitative easing. welcome to, oh my guess good. have you with us all this edition of inside story william consult with you in henderson, nevada. the impact the current situation as far reaching both domestically and internationally, short term and long term. how do you briefly assess the situation that the us is facing as well? the us treasury market is that the core and the foundation of the, of the global financial system, because every i said is priced off of us treasury's so when such a lowers the rating of the us treasury, it implies that they have lost confidence or a half or less confidence that the us government is able to contain that spending in a way that keeps the dead rising at the size, the, at the speed of the g, d, p,

or the, the us economy. 11 of the worst things that can happen is if the spending gets out of control and the size of the debt starts to grow faster than the us economy itself is growing. because that implies the us will be less able to pay the outstanding debt. and right now the, the, the, the government is in a position where it can do something about it. but so far fidget, still telling us that the government has not done the necessary measures to contain the growth of that debt. francis popular uh it just, it really is a shopped across the balance. isn't that? yes, i think it is. i mean, um, i think driving to this actually has to be in the stretch of 2 folds close by the desk. so you should not, because this is not the 1st time we have had the dress, a default on youtube list. can you find too fast? i it's, i think, and since finance causes this is actually just, i've done nothing. it probably is about time that so somebody said this will not do

. you should not play chicken with world scribble system like this. finally, we'll talk the specifics of the chinese on go during the program. but how does do you think beijing view what's going on in terms of the fiche downgrade? well, i mean it's, i don't think it's particular to beijing, you've just heard your commentators. uh, you know, very carefully spell it out of the us. if it was not the united states, it would be a ponzi scheme. think of it this way, since 2001 the u. s. has been exceeding gibbs income in terms of spending. that means if you've got a salary of 800000, you are spending more than 800000 since 2009 in addition to going to deficit on a yearly basis. since 2009, they borrowed additional money and that is increased the debt. so the u. s. as in a position now, where it's borrowing to pay gets that interest. that's interest on the money. it's already borrowed with no end in sight. as we saw with the, you know,

taking the can down the road. it's really about there is no solution that polarized everything that my fellow commentators have pointed out. so yes, it's an obvious conclusion. what is only strange is that the other reading houses haven't joined it. when i just bring you back in here because of what i think what john, that yelling is so angry about is the size, the diesels of downgrades happened to countries that, that we say are developing. all said, well to isolate, to the under sort of certain regimes, her feelings of being had been that professionalism perhaps is also being tainted slightly with all of this. well, secretary yelling actually has focused as a discussion onto the subject that he can always i, she's right to say the us is still the most powerful country in the world. and it is probably the most attractive place for investment money to come into the country . every country in the world is sending their savings to the state because united

states is the most productive country in the world. but such as telling us, what's not the us economy, they're worried about. it's the us politics. the not confident that the government itself is both democrats and republicans, did i, constance, they will be able to contain the growth of spending. and in this case is mainly entitled and spend the spending for, for social security, the health care, which are the main drivers for the rise and spending that the somehow the fits just telling everyone you know, us government is not able to either raise taxes or contain spending in a way that makes us confidence the us government will be able to pay off the state in the long run. well really, while you were talking and it was shaking his head in disagreements and francis certainly was noting a degree. but let's go back to i the 1st as to why you were shaking your head in disagreement as well. i love this idea that somehow you're so good cut education, social welfare in a country which has 10 point, one percent of poverty already. if people get droves of people going as a streets,

you have a economy which is pushing a lot of people to the default on their homes. meanwhile, the unlimited spending is going to the military and largest military budget ever. the military was exempted from any kind of decrease. so you know, this, this idea that the u. s. is, uh, you know, somehow doing, uh, the right thing here is kind of ridiculous. the us has pursued a path of financial irresponsibility. i'm not saying that from beijing's point of view, how else can you explain it? we've exceeded our g d p in terms of our national debt or 2nd in the world behind a japan which is around 240 to 50. depending on which day you're measuring it, that's times 250 to 40 percent above their g d p. so we're in a rarefied error where our strength, yes, we have strength, there is growth, but it's not the kind of growth nor is there a solution to this that francis you a,

i mean you've had both sides of it now and you know, you know, thinking agreement with william before i just bring it in for a brief sense to reply. yeah, always nothing about the politics because i do think this is a political issue. that the reason why the us contract control of the spending con, direct it into the most socially effective and productive areas. and so it is actually because of the dysfunctional politics it dots from the message is the hall to them. so that's the reason for the short term view and the focus on things that potentially don't mattress boxes for example, empowering next generation education. i'm just guessing, i'm just doing something got democratic, tumbling, just not able to deal with it because of all success. so dysfunctional and they do, we talk about the politics. let's go back to william because, you know, we talking about a divided governments. oh, certainly divided us political stance is, you know, when it comes to the debt ceiling, we had so much about it every time either when the republicans want to raise it or

when the democrats wants to raise it. heated debates, real worries about where government services will stop really and this happened, you know, happens time and time again. they just can't seem to find middle ground politics. it's got very personal. absolutely. insight in the united states paul takes, has become a so dysfunctional as, as of this couple of says that the us is not able to decide on priorities. and unfortunately, i know how does a great narrative about the size of your smoke are spending being the source of this problem. but you know, it's not 1st, but it's only 3 percent of g, p, a 12 percent of the us budget. so military spending is actually schedule to, to, to shrink as a, as a share of gdp going forward on. so the budget actually is taking care of the military spending. it's really the, the social spending of for health care. and it's not so much of the amount of spending is the cost of health care, which the us has never been able to get

a handle on going back to president clinton and his attempts to, to modify the and reform health care. so. so for the united states, it really is a problem of costs going all out of hand and the us government not having the capability of making decisions, heart decisions on how to contain costs of health care. let me bring you front 6. i think we need a little bit of neutrality here, and you talked about the politics, frances, you keep to o'clock the minutes and i don't wanna get too bogged down about the military. but the fitch statement did talk about governments over the last 20 years . and within the last 20 years, we have 2 major military complex, one in iraq, one and i've got a start of the ministry spending on those 2, a loan has gone into the billions. that is a debt that the american government has to try and pay back, because they borrowed money on that. this is actually exacerbating the problem that we're seeing now post pandemic. and now the rise in the cost of living, which is affecting old americans and the public globally as well as well as you can use to distinguish between 2 things. one is deposition. the other is the desk of us

how high levels of started that. well, if you go to the boys that it's engaged in, in last 20 years, and even before that somebody, we should remember that the, the even going back into the novel has left it with legacy that unplugged the debt on his heart anyway. but then on top of that, we have an entrenched deficit. you know, it was the every year all the time. that's spending axis, it's refuse. and i think it's somewhat the way i read fits his statement. in some respects it was the entrenched deficit because of the modem that looks like i'm just talking. let me just come back to this conversation on a little bit more, 2011 at standards. impulse downgraded the us at that time. that was panic. a little bit banks moved to, you might say, a both struck the financial community. this time, this being the public, this be no major moves. everybody's just goes home with it. and what's going on

because at the end of the day, is that china and japan a by a most of america's death. and i really happy to do that because again, the whole scenario about the strength of the dollar as well. so like the big 4 accounting firms, they're a big 3 in terms of rating agencies. and 2 of them have to maintain their triple a rate and a rating. so it's not really going to matter if for any reason. one of the other rating agencies downgrades that us then it starts to matter because man, it's a say, don't a lot of contracts require that. it least 2 rating agencies rate a bond at a certain level. if it's the, you know, somebody wants to absolute safety, we'll say, well, we need to rating agencies who say that this is triple a bond. if that doesn't things, then there are contracts. so, you know, people say, well, i can't buy those, i have to buy something else about norwegian bonds or something like us. so it definitely will make us a sense. but i just want to out

a little interesting note. 2 weeks after s and p lower their rating, they were investigated for fraud the following year in 2012, a group named evans, which is a smaller rating house, did the same thing. they downgraded twice and they were probably investigated by uh uh, by the f b i are and once again under some sort of uh, fraud, terry, they did several it in the end, but it was not a very happy circumstance. it so. so i, i wonder if judges one is going to be punished by them. now, i disagree with this idea that, you know, the, the treasury secretary yelling, who use big font, she's somebody who follows the data. i think she's just putting on a show. i mean, she has to be worried about these. yeah, you know, yearly deficits is my colleague is pointed out, it's in french, doesn't change. and then on top of that more bar ring for wars and pandemic to indeed says it's not just about to you on the whole debate. you that you,

we talked about the politics, you know, because of bite. and that is actually evening for that. he thinks that the debt savings should go, so you can not see them against the constitution. this may be at the bates that will even head towards the presidential election will may be resolved when the next president is elected. but you need to bypass this on the approach that you want these things. so can we expect more bickering, a more instability? because countries like china are watching out by you know, they all, and i'm not, i don't, it's increasing the last to the all come and serve as a judge, stating about whether that should even be a debt saying, i mean, whether congress should be able to authorize spending and then refuse to pay for it, which is roughly what's going on and all the things are the income or i sent you the you try, it looks ridiculous. that's embarrassing. and it doesn't lock anyways, right throughout the country and know that the big bias of american debt would be looking at those. i'm saying we want to trust the american savings products that we buy. so us treasury's of us or have you, we want to,

to trust the dollar. and this, this stuff going on in america which hung to minds facing those things. so how long is that going to talk with that? how long will they put up with it? because one of the things i think will be in the many big businesses, certainly in, in the us will be wondering, is whether we all seen as reliable because obviously big companies also have to take on that they have to borrow. so how is this a good to effect the big multi nationals who are the computer systems, the airline industry, the construction funds? well, one consequence of the, the rating decision. and i, it's really has the knowledge what the markets of already seen for quite a while. that the us governance structure is the ability to contain spending is in question as a result, us treasury, so now having to pay higher interest rates to compensate for that higher risk. so what's gonna happen is that for us companies is going to be a partner for them to raise money. it's gonna be hard for them to finance investment. but that's

a consequence of this poor and government structure of the country in which they operate. and i think that's something that most companies have learned to, to live with, and the knowledge that they'll be a higher cost. now, for those who are holders of the us treasury, they'll be compensated with higher interest payments. so again, i think the markets of work itself out in terms of repricing, us treasures in a way that makes people confidence and be able to. busy us treasures as a source of savings in terms of i'm trying to understand the market. so you shaking your head on the let's, let's see what you want to say. oh i, i am so harsh. i completely disagree with my colleagues. first off of the, uh, it's not about containing spending, it's about inflation, and that's why the fed has been increasing rates as they've increase the rates. that means people who bought before then they've seen the value of the treasury, is they bought plummet. that's why we've had issues like silicon valley bank going under as well as others. so there's, i don't even know where you're coming up with this idea that this is somehow about

the impossibility of for tailoring social spending is the problem. the problem is that the u. s. is less competitive. if you look at inflation and been in terms of wages and where it's going. you'll note that it services with in the us where they're, how the hospital or education have stored literally going up 1012 times. where is actual goods coming from the rest of the world of the rain, fairly steady, in some cases, even gone down. so the inflation that the u. s. is facing, is of its own making. i'd say is a highly, it's a service economy. and when those wages go up, it's not like, uh, putting the interest rates higher by the fed is going to make people feel less sick or decide they don't need an education. but really i'm going to ask you to come back and you wish like you had through all of that. yes, absolutely. i mean, that's a non secular, that's of all you has just talked about because of inflation is a global problem that resulted from the supply problems caused by the cold it and

also the war between russia and ukraine. we see that before they called it us, ted for 10 years, inflation rates of less than 2 percent and the global economy has been in addition to fortune period. so. so the fact that he's, the inflation is brought up is, is really a non, it's like what is not relevant. what's relevant is that the us treasury has not been able to sell its bonds at a low interest rate because the markets are slowly losing confidence that they'll be able to get back to the same value that they've put in. uh so, so i think this is a long term problem that has to do with the size of the stuff a citizen problem. so just thought it up and, and be able to contain the size deficit is the main issue which jenny, yelling, and every, all the secretary treasury has as talked about every every fed resort. china has talked about that the us is on a non sustainable fiscal trajectory. and we need to contain this and the size of the deficit, both spending and vibration patches. but like i said, you guys aren't going to agree on that. it's almost about to francis. i even wrote

just that because obviously it was that he went this week, but we sold the bank of england, right? it's based interest rate. and i'm just wondering from where you'll positioned in the united kingdom, how, you know, the bank of england watches, what's going on in america understands the spending issues under the debt ceiling. and why the treasury is so angry at the fiche rating. how does, how does raising bank rates in the u. k. a dealing with inflation relate to what's going on in the us because every countries tried to deal with inflation at the moment, totally globally or no. absolutely. in places as a physical problem on the question by come to not he was in the us of the boxes, i actually don't think is directly related to the slides and physical deficits. we have a sizable physical deficit because of a coverage fund that make it. we have a lot in the else from office financial crisis and everybody was trying to be worried about physical debt and deficit. since and everything was kind of coach heavy on it. and i'm wary about raising those as to

a particular purpose. i'm, i'm, and i'm getting because i think some of the policies i've followed up that time. where are you going to be damaging? what i would rather focus on? i think he's actually looking at this from a collateral perspective to see what that meant. what the drive is, if the american depths at all um, because what are 2 things that i've noticed and it's been written about by some people like and then right. i'm, for example, it stops the us kind of acts as consumer girls resort the whole low. so if you go to whole was, well, lots and lots of countries to trying to put the extra time to for the export that good strategies and build up foreign exchange reserves. someone has got to run the deficit and those countries, particularly automatic, has commented on this, particularly over the last few years hoppey us i'm, you cannot guarantee because a accident as i was just the countries actually really have the biggest problem

with inflation and assigning and so i just come back to you because china has been pushing over several years to push the one and as an alternative to the dollar. it's made a secret in that respect. but, but it's backed off recently. what's going on that is it because the, the dollar was to established and to strong and globally recognize as a reliable fund and the money to actually invest in. why is that pups dare i say the face? seen the one. 0 is that still working? progress? i go i, i think you mischaracterizing, i don't think that they lack faith that the, they're the ones you've been putting together the digital currency. they've been playing that out. doing it very slowly. the want to make sure that it works. they are also doing currency spots with a lot of the nations that they are doing business with. remember, china has a lot of over a 100 almost 120 nations where it is the primary trade contributor,

one way of good in terms of both way trade. but you know, the reasons i, i don't understand where my colleagues are coming from. i would really like them to tell what they just said to the man on the street and us. they see that people have lost 4 percent of their real income due to inflation, europe, even more of great britain as well. saying that inflation somehow doesn't matter. i, i find that highly strange given that the us is focused on it, that it's raising rates and forcing other countries to do exactly the same in terms of china. but it's not letting off, but this is a time of great uncertainty. this is not the time to push forward. there's obviously some coming up with the brakes meeting coming up next. in the near future . they will be looking at a bricks, currency. i don't know how far that's going to go, but it's not about replacing the dollar. the us violated the terms of its own

agreement, not to web an ice swift system that settles a bank accounts on a daily basis where everything can square out. it has to be very, very secure because you have so many transactions. and it was the us to said they would never do that, they would never weaponized it. and then did us as i routinely now using it as a weapon against any country. a dozen of you as the following is criteria. and that includes a lot of countries right now. and so at this juncture, you know, you, you, you have a situation where a china is trying to be an adult in the room. and the us, as my colleagues at point it out, does not have its house in order. well it, it's certainly seems to be like that because we're coming to the end of the problem . just wanna get francis's opinion on williams. because really, if we move this on, we come to to huge general elections in the united kingdom and in the us in 2024. francisco, i come to you because, you know, international relations relationship,

a special relationship between the united kingdom of america is a, one of those things that they can never be broken. yet. both administrations don't always quite c h, y, but when it comes to finances and inflation, are they working together? how do you assess the way that tried to conduct a deal with inflation and the problems that the general public has lodge? as i mentioned, you know, some of them losing their homes. yeah. i think both countries are really probably recognize on they say the about the fact it's is trying to get information on the control. it's why is it not his is primary consideration, not on over to the secondary. the other mandate just unemployment and is there one on that? um, you know, it's not going to be concerned about what's going on. now the countries, assuming that the bank of england responsibility is the domestic economy of to you, k and attorney type guides. and so far as the latest said, to the extent that the printer is kind of me, is affected by driving forces in particular by things like this,

thanks. don't all of the cost of energy, which is costing dollars. so it's, it's not when us leads you k follows with us itself and we'll try it. it's very mobile that it said that does sufficient dependents. spectrum in the us, new on the us. so let me just uh, find one moment then, sorry, it's a bit of a button that says welcome to the final comment william from you. i mean, it's just going to be a huge issue as we lean towards the presidential election now. absolutely, and the use us that remains the most powerful country in the world, that that's why its courtesy is being used for every transaction around the world. and the us government and politics going forward is going to have to ensure that the us position is, is, is continues to be the most popular country and that people remain confident that us dollar can be used. what we'll see, what does happened, it's been great to speak to all 3 of you. thanks to me, i guess we're literally on the time in advance is complex for joining me on this

edition of inside story and thank you to as well. so watching you can see the program again any time by visiting our website at algebra dot com months. if the discussion go to on facebook page, that's facebook dot com forward slash ha inside story. you can also join the conversation on twitter handle. that is as a inside story for me. so rather than the whole inside story say, thanks for your time and your company, the the

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