The Grind:
O’Leary Ventures Chairman Kevin O’Leary discussed the recently downgraded U.S. credit rating from a conservative perspective, emphasizing the significance of this event for the economy and loans. O’Leary described the downgrade as a clear indication of a serious problem that cannot be sugarcoated. He explained that when the U.S. economy is downgraded, faith in the U.S. dollar and Treasury bills diminishes, affecting the global perception of the U.S. government’s financial credibility. O’Leary stressed that the U.S. dollar’s status as the world’s default currency is tied to the trust in the U.S. government, which impacts sovereign funds and liquidity.
O’Leary further outlined the direct consequences of the credit downgrade for Americans. He pointed out that the cost of capital, which refers to the expense of borrowing money to fund the government and deficit, will rise due to the downgrade. O’Leary linked this situation to recent legislative actions such as the CHIPS Act and the Inflation Reduction Act, which have led to increased government spending and a growing deficit. He suggested that these actions were not the sole cause of the downgrade, but they contributed to the erosion of fiscal responsibility and governance.
The Details:
The implications of the downgrade for individual Americans are significant, according to O’Leary. He noted that the cost of loans, including car loans and mortgages, will rise due to the increased cost of borrowing money. This, in turn, affects the average person’s financial situation and puts additional pressure on household budgets.
O’Leary also highlighted the factors cited by the ratings agency Fitch for the downgrade. These include concerns about fiscal deterioration, heavy debt burden, erosion of governance, rising deficits, and actions by the Federal Reserve. He noted that Fitch’s assessment aligns with conservative concerns about government overspending and fiscal responsibility.
In response to Treasury Secretary Janet Yellen’s statement that the rating agency used outdated data, O’Leary maintained that the concerns about the deficit and financial governance remain valid, and he emphasized the importance of addressing these issues for the health of the U.S. economy. Overall, O’Leary’s conservative perspective underscores the need for prudent fiscal policies and responsible governance to mitigate the negative impacts of credit downgrades on the economy and individual citizens.