"US States Likely to Defy US Downgrade to Keep Top Credit Ratings"

[Xan]

"Defy" I believe is the wrong word here; what they seem to be saying is that states will be keeping their pristine credit rating even as the federal government does not.

https://finance.yahoo.com/news/us-state ... 15923.html

Does that really make a lot of sense, that the states could be more reliable at returning nominal dollars when they can't print and the feds can?

[yankees60]

"Defy" I believe is the wrong word here; what they seem to be saying is that states will be keeping their pristine credit rating even as the federal government does not.

https://finance.yahoo.com/news/us-state ... 15923.html

Does that really make a lot of sense, that the states could be more reliable at returning nominal dollars when they can't print and the feds can?

It does because I think that all of them have to balance their budgets. Therefore, no unrestrained spending.

Also, I believe that defaults on municipal bonds are rare.

The threat of New York City around 1975 is now 50 years ago.

[Xan]

"Defy" I believe is the wrong word here; what they seem to be saying is that states will be keeping their pristine credit rating even as the federal government does not.

https://finance.yahoo.com/news/us-state ... 15923.html

Does that really make a lot of sense, that the states could be more reliable at returning nominal dollars when they can't print and the feds can?

It does because I think that all of them have to balance their budgets. Therefore, no unrestrained spending.

Also, I believe that defaults on municipal bonds are rare.

The threat of New York City around 1975 is now 50 years ago.

Surely such defaults are a lot more common than defaults on loans given by currency issuers denominated in the currency they issue.

[ochotona]

Does that really make a lot of sense, that the states could be more reliable at returning nominal dollars when they can't print and the feds can?

I bought some short-term munis in an ETF, it's the iShares IBM* (* is a wildcard) family of ETFs. Choose your maturity. I'm keeping the term short, 1-2 years, so IBMF, IBMG, IBMH. These ETFs have ~1000 bonds in them, and are liquid (unlike bonds, where you may be a poor bid).

In a taxable account, if you're in the 22% tax bracket, the after-tax yield is OK. for me, the point is not to max out the yield... the point is to not depend on the Federal Govt 100% for your fixed income.

[yankees60]

"Defy" I believe is the wrong word here; what they seem to be saying is that states will be keeping their pristine credit rating even as the federal government does not.

https://finance.yahoo.com/news/us-state ... 15923.html

Does that really make a lot of sense, that the states could be more reliable at returning nominal dollars when they can't print and the feds can?

It does because I think that all of them have to balance their budgets. Therefore, no unrestrained spending.

Also, I believe that defaults on municipal bonds are rare.

The threat of New York City around 1975 is now 50 years ago.

Surely such defaults are a lot more common than defaults on loans given by currency issuers denominated in the currency they issue.

What you say makes sense but it seems that a municipal default is quite rare?

[Xan]

What you say makes sense but it seems that a municipal default is quite rare?

Perhaps, but a default of an entity like the United States government has never happened. It might be impossible in theory.

I should clarify that the United States have defaulted before, but not when using a system of fiat currency.

Am I correct that the rating agencies are only looking at the possibility of nominal default? Even if they took into account inflation due to printing, then surely the state/municipal bonds, being denominated in the same currency, could be no better.

[seajay]

Perhaps, but a default of an entity like the United States government has never happened. It might be impossible in theory.

Isn't the entire purpose of fiat that it is glide path rather than hitting walls. If necessitated partial defaults - such as in the way of high inflation, nearly as high interest rates, high taxation ... that collectively is paramount to a progressive form of partial default of sorts.

British T-Bills 1973 through 1977 lagged (high) inflation in total by 19%, 4%/year annualized. GROSS. Factor in that the most common (basic) rate taxpayer saw taxes increased to 38% type levels and holders saw more like a 40% NET haircut over those years, near -10% annualized. But politically maintained the claim that since fiat the UK had never defaulted.

The US giving up its capacity to export inflation instates the potential need for periodic austerity as periodically endured by other countries (that Americans have never had to endure since fiat). Printing dollars to spend on whatever devalues all other dollars such that other countries printed more of their own currency in order to buy more USD (US debt) to otherwise avoid their existing loans being devalued. When those others dump dollars for gold/other assets then printing to spend dollars becomes a domestic matter. No free lunch. China was a large holder of US debt, but in the scale of things has cut that right down. If the US debases the dollar then it matters not to China they'll just continue to convert surplus dollars into gold, that following dollar debasement will see gold buying even more dollars.