Moody’s, the Dollar, and the Crisis of the American Social Settlement

Be concerned but not for the reasons you would think

Snapshot: the recent downgrading of US government debt by ratings agency Moody’s has led to a lot of handwringing in response. This is largely for the wrong reasons, many of which underpin Moody’s own assessment. The downgrade is symptomatic of deeper structural issues impacting the American global political economy and domestic social settlement. Recent agreements by Gulf states to ‘invest’ in the U.S. speak to the ongoing dedollarisation, as the world continues to move on. The government debt question isn’t about solvency; it’s about a political economy that promised the American Dream but delivers the lived nightmare for many.

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“On the Moody’s downgrade, who cares? Qatar doesn’t. Saudi doesn’t. UAE doesn’t. They’re all pushing money in. They’ve made 10 year investment plans.” These were the words of the U.S. Treasury Secretary Scott Bessent on a recent Meet the Press program, in which he sought to deflect concerns by talking up U.S. President Trump’s recent tour through the Middle East.

Linking these two events together raises interesting and important questions. My suggestion is that Bessent is too flippant in the dismissal of Moody’s downgrading, although Moody’s downgrading is premised on an erroneous assumption about the nature of American government debt. Bessent is also too glib in his claims about what the ‘investment plans’ from the three Middle Eastern nations may portend, for the U.S. and for the global economic and financial architecture in the medium term.

Moody’s recent downgrade of U.S. Treasury securities marks more than a market signal. It is a cultural and performative moment, a rupture in the narrative that once held the U.S. dollar system together. For decades, U.S. Treasuries (USTs) have been treated as a zero-risk asset. They were the benchmark against which global finance was priced. Now, with all three major ratings agencies having flagged concern, USTs are no longer treated as sacrosanct. At the same time, U.S. President Donald Trump has completed a whirlwind visit through the Middle East where he has bragged about a series of ‘deals’ with Saudi Arabia, Qatar and the UAE. The announced deals, which included some projects that were already previously announced, amount to total sums of $1.043 Trillion, and a further $1.2 trillions in future plans with Qatar. The ‘deal-making’ braggadocio provided media coverage against a backdrop of backtracking on tariffs with China.

The Moody’s downgrade and the Middle East investment announcements both point to an ongoing shift in the U.S. political economy, its domestic social settlement and its global economic tentacles. These are shifts that carry profound implications: for global capital flows, investment mandates, asset pricing, and the architecture of the international monetary system.

These shifts are not, however, for the usual mainstream reasons. Moody’s downgrade actually misses the point by repeating familiar, but flawed, notions of public finance and debt. As for the Middle East investment announcements, these too point to a diminution of demand for USD over the medium to long term, with investment decisions pointing to ongoing moves to dedollarise.

US Treasury Secretary Scott Bessent on Meet the Press.

Misguided Missives

Let’s start with the downgrade.

The Moody’s downgrade rests on a familiar, but ultimately flawed, understanding of public debt. It assumes that rising debt-to-GDP ratios signal a looming solvency crisis. But this logic, which makes sense when applied to currency users (like households, firms, or states in the Eurozone), falls apart when applied to a sovereign currency issuer like the U.S. federal government. The U.S. cannot “run out” of dollars for the basic reason that it issues the currency in which its liabilities are denominated. The Treasury’s so-called “borrowing” is nothing like household borrowing; rather, it is a monetary operation to support interest rate management and provide safe assets for portfolio holders.

You can’t borrow what doesn’t already exist.

Moody’s downgrading has, however, reignited the usual handwringing over deficits and debt ceilings. Commentators across the spectrum warned that America was “spending beyond its means,” borrowing from the future, and risking eventual fiscal collapse. The implication was clear: the government needs to tighten its belt, just as any prudent household would.

This framing is so familiar it feels like common sense. But it’s wrong, and dangerously so. The real problem is not fiscal irresponsibility by those who understand how fiat money actually works. It is the intellectual irresponsibility of those still working from outdated metaphors that treat a currency-issuing government like a household or business. Worse still, these outdated models are not merely incorrect. Rather, they actively enable the very profligacy their defenders claim to oppose.

Fiat Money Realism

Let’s restate a simple fact: the U.S. federal government creates the money it spends. Every dollar of spending appropriated by Congress is injected into the economy by marking up the reserve accounts of banks. No taxes or borrowing are needed in advance. There is no gold standard, no fixed exchange rate, and no operational constraint on dollar issuance. The limit is not insolvency, it’s real resource constraints and inflation and I return to these below.

This understanding is not radical. It’s operational reality. It is the reality of modern banking operations as acknowledged by the Bank of England, the Bundesbank and has been documented in detail by the likes of Werner who shows that thinkers going back to the late 1800s at the very least were aware that financial institutions created money ex nihilo, and by Berkeley et al’s recent detailed examination of the operations and mechanisms by which new money is created in the UK. Historical anthropologists, like David Graeber’s Debt: The First 5,000 Years and economic historians like Michael Hudson have also pointed to the fact that money emerged from credit, which is a social institution, rather than the other way around. In other words, it comes into existence ex nihilo irrespective of form. (For those interested in the historic evidence of money endogeneity, they may wish to consult the discussion in Louis-Philippe Rochon and Sergio Rossi’s 2013 paper ‘Endogenous money: the evolutionary versus revolutionary views’.)

Yet, despite the admissions of central and commercial bankers, and the work of research academics and historians, policymakers and pundits continue to cling to the notion that government spending must be “paid for” through taxes or debt issuance. They warn of looming debt burdens and rising interest costs, as if the government might one day run out of dollars - the very thing it alone can create.

This fiction might be tolerable if it helped instil real discipline. But as the periodic farce of the debt ceiling shows, it does no such thing. The so-called constraints are entirely political; they are performative battles that rarely limit actual spending or force sober evaluation of policy priorities. Instead, they act as a smokescreen for arbitrary austerity, regressive tax policy, pet projects, assorted boondoggles and growing inequality resulting in a breakdown of the domestic social settlement and a destabilisation of global networks of value flows.

Indeed, the belief in financial constraint often encourages more reckless behaviour, not less. Because the debate is framed around abstract financial limits rather than real-world impacts, it divorces fiscal policy from substantive economic and social goals, such as full employment, productive investment, housing affordability (and reduced homelessness), rising education attainment, lower infant mortality rates, reduced levels of deaths from drug overdoses and ecological sustainability, just to name a few.

The irony is that those who still believe deficits must be offset by bond issuance are often the ones who have most consistently endorsed the actual fiscal recklessness of recent decades. The politicians in Congress speak with forked tongues. Endless wars, corporate tax cuts and asset-boosting stimulus packages have all passed under this model with little scrutiny, as long as they were “paid for” through borrowing or offsetting cuts. Meanwhile, public investment in health, housing, infrastructure, climate or education is rejected as unaffordable.

And yet, for all the supposed constraints, U.S. deficits have grown. Debt has risen. The political process has not restrained spending; it has merely misallocated it. Had the U.S. not enjoyed decades of imported deflation, from cheap Chinese goods and financialised supply chains, this framework would have long ago triggered significant inflation.

U.S. Treasury securities are not borrowing in the ordinary sense of the word. They are financial instruments offered to the private sector as a place to park savings, earn interest, and manage portfolios. But if the U.S. cannot become insolvent in its own currency, what does a downgrade really mean?

The answer lies not in fiscal arithmetic but in geopolitical transformation and domestic political crisis.

Bonds Were Never the Constraint

This brings us to the myth of government bond issuance as a fiscal brake. The idea that deficits must be offset by selling Treasuries rests on the belief that market appetite for U.S. debt can restrain policy excess. But in practice, U.S. Treasuries are the global risk-free asset, or near-enough risk-free relative to all other assets. They have been a premium store of value used by banks, central banks, corporations and investors around the world. They are not burdens. They have historically been sought-after instruments that play a foundational role in global finance.

Issuing Treasuries is not about raising funds. Rather, it’s about providing a safe, liquid asset for dollar holders. Operationally, the sale of Treasuries simply swaps one government liability (bank reserves) for another (interest-bearing securities). The issuance is more monetary than fiscal, it is a tool for managing interest rates and liquidity, not funding spending.

Far from being a liability the world tolerates, U.S. Treasuries have been a pillar of global financial infrastructure. They serve as:

• Risk-free benchmarks for pricing assets across markets.

• Collateral in repo markets, facilitating liquidity in the banking system.

• Reserve holdings for foreign central banks, anchoring currency stability.

• Safe haven assets for institutional investors and insurers seeking capital preservation.

The U.S. government’s “debt” is, for these actors, a critical asset. Demand for Treasuries is not merely financial. Rather, it is systemic. The scale, depth and liquidity of the Treasuries market is, historically, what makes it a critical feature of the global financial architecture. Thus, the issuance of Treasuries to “fund” deficits is largely a portfolio reshuffle, where reserve balances (non-interest-bearing liabilities of the Fed) are exchanged for securities (interest-bearing liabilities of the Treasury). The private sector gets a yield-bearing instrument; the Fed alters the composition of the monetary base. But no real constraint is imposed. There is no crowding out, no forced austerity. Just accounting.

Should primary market demand falter - resulting from, for instance, political dysfunction, rating downgrades or dedollarisation - the Federal Reserve stands ready. This is not speculation. It is precedent. In 2008, 2020 and even more subtly in 2023, the Fed demonstrated its willingness to step in as the buyer of last resort, absorbing Treasuries when market function came under strain. It does so to maintain interest rate control, ensure liquidity, and safeguard financial stability. It does not do this because it is “funding” the government. Indeed, in the week of May 12, 2025 the Fed quietly bought up $46.3 billion of Treasuries.

The only reason the Fed does not usually buy Treasuries directly from the Treasury is a self-imposed legal constraint: the 1939 prohibition on direct monetisation. But this is an institutional choice, not an economic requirement. The Fed can, and does, support the Treasury market indirectly through open market operations. The line between fiscal and monetary policy is thinner than orthodox theory admits. Even the legal prohibition on the Federal Reserve buying Treasuries directly from the Treasury is a policy artifact, not a structural necessity. And when markets wobble - whether in 2008 or 2020 - the Fed steps in to buy in the secondary market, showing it will not allow bond issuance to disrupt broader policy objectives. This renders the idea of “market discipline” increasingly hollow.

If Treasury issuance were to face reduced demand in the primary market, as downgrades or political dysfunction might imply, the Fed would almost certainly intervene again, either explicitly or implicitly, as it did mid-May 2025. This shows the bond market is backstopped. It’s not a constraint. It’s a managed mechanism. So let’s be clear: bond issuance has never been a real constraint on spending, only a political and ideological tool that conveniently shifts scrutiny away from what actually matters.

The Real Sustainability Problem

Moody’s invokes “sustainability” to mean fiscal solvency. But this is a category error. The real sustainability problem is not financial; it is political and structural. What’s in question is not the U.S. government’s ability to issue dollars, but the global willingness to accept them and to hold them. The U.S. dollar system, which has long been underpinned by a mixture of trust, convenience, utility and coercion, is losing its foundations.

Part of this erosion is reputational. As the U.S. increasingly uses its financial system for sanctions, asset freezes, and discretionary interventions, it creates incentives for other countries to reduce exposure to dollar-denominated risk.

But more fundamentally, the dollar’s centrality rests on material foundations. The U.S. must offer the world either desirable goods or desirable assets. As American deindustrialisation has progressed, the emphasis has shifted to the latter: dollar-denominated financial instruments. But this model is under stress, as the expansion of fictitious capital surpasses the capacity of the real economy of ‘use values’ to ‘cash them out’. When the U.S. economy produces fewer tangible goods that others want, and its government weaponises the dollar system, the material basis for holding USDs weakens.

This shift is playing out in real time.

Swapping out of dollars for real things … a subtle dedollarisation is under way.

The Emirates Exit: A Petrodollar Reversal

During a recent Middle East tour, Donald Trump boasted of over a trillion dollars in “deals” secured with Saudi Arabia, Qatar and the UAE. Scott Bessent recently drew on these ‘deals’ to dismiss concerns about Moody’s ratings downgrade. But far from being a signal of confidence in the dollar system, these agreements perhaps point to the opposite. The Gulf states have not agreed to hold more Treasuries or accumulate dollars. Instead, they are converting their dollar surpluses (or anticipated dollar surpluses) into tangible assets: weapons, aircraft, infrastructure and AI hardware like NVIDIA chips. They are buying things not bonds.

This shift is emblematic of a broader trend. The Emirates are preparing for a post-petrodollar world. Their energy transition is well underway. Massive investments in renewables, green hydrogen and smart city infrastructure reflect a strategic bet that the long-run value of holding dollars is diminishing. Why accumulate dollar-denominated financial claims on an empire in decline, when those claims may be frozen, inflated away, or outpaced by real technological change?

This shift is subtle but profound. It indicates not just a portfolio adjustment, but a geopolitical repositioning. The Gulf, long a linchpin in the dollar recycling mechanism, continues to diversify its financial, technological and diplomatic alignments. And the message to Washington is clear: we’ll take your tech, but not your paper.

The Bond Market Autoimmune Crisis

All of this feeds into a mounting dilemma for the U.S. Treasury and Federal Reserve. To attract foreign buyers of USTs, yields must rise. But rising interest rates bring their own pathologies. They increase the cost of borrowing for households and firms, undermining effective demand and amplifying the risk of economic contraction. Mortgage rates soar. Credit card delinquencies rise. Business investment stalls. We are seeing the evidence of this already.

In trying to make Treasuries more attractive, the U.S. deepens its own downturn.

This is an autoimmune reaction. The very measures taken to defend the credibility of the dollar system, interest rate hikes and putative fiscal tightening, end up attacking the body politic itself. And perversely, the asset-rich benefit: their rents rise with higher interest income, and their wealth compounds as real assets become scarcer and more valuable. Meanwhile, the asset-poor - workers, renters, borrowers - face deepening precarity.

This is the core paradox of the current American political economy: financial repression for the poor, rising rents for the wealthy. The same policies that aim to stabilise capital inflows further destabilise the domestic economy.

Fiscal Theatre vs. Economic Substance

What we are witnessing is not the absence of fiscal discipline, but the dominance of fiscal theatre over economic substance. The performative gestures around debt ceilings, downgrades and Treasury auctions distract from the real work of governing, assessing priorities, managing inflation and investing in long-term capacity.

As Paul Samuelson noted as early as the 1950s, the “old-time religion” of balanced budgets may serve as a useful myth; it is a story to restrain short-sighted politicians. But as he also implied, a myth that outlives its usefulness becomes a liability. It distorts debate, narrows options, and ultimately justifies dysfunction. Today, the stakes are too high to keep indulging that myth. The United States needs a clearer, more honest framework for thinking about money, policy and prosperity. The deficit that matters is not in the budget. It’s in the collective imagination. And it has global ramifications.

A common critique levelled at those who simply acknowledge the reality described by monetary realism is that they believe governments inevitably will spend without restraint, heedless of inflation or waste. This is a misunderstanding, often made in bad faith or based on an outdated reading of 20th-century inflationary episodes. In reality, the economists, policy researchers and advocates who embrace a more accurate understanding of money creation and public finance accounting tend to be more vigilant, not less, about real constraints and consequences. Their concerns focus on four interrelated dimensions:

1. Inflation Risk. They understand that the constraint on sovereign spending is not insolvency but inflation. Because money creation adds purchasing power, it must be matched by the economy’s capacity to expand supply: of goods, services, labor, and infrastructure. Inflation doesn’t affect everyone evenly. Indeed, it is clear from recent research (see Mark Blyth and Nicolo Fraccaroli 2025, Inflation: A Guide for User and Losers) that inflationary impacts are asymmetric with the downside effects concentrated amongst the lower income cohorts. As such, the goal is not arbitrary spending, but productive investment that grows the economy’s real capacity and addresses problems associated with income inequality.

2. Wealth and Class Distribution. Monetary realism highlights how conventional debt-driven policy and monetary tightening (e.g., interest rate hikes) often reinforce wealth inequality by rewarding financial asset holders and suppressing wages. It sustains a political economy dominated by rentiers. Sound fiscal policy must consider who benefits from new money creation, not just how much is spent. Social inequality isn’t some abstract problem, for the basic reason that entrenched poverty and limited social mobility fuels the politics of resentment and grievance, with potentially violent consequences.

3. Misuse of Funds. The risk is not spending too much, it’s spending poorly. “Anything we actually can do we can afford,” noted Keynes perspicaciously in a talk to the BBC in 1942. Military overreach, assorted subsidies, or bloated contracts that deliver no or questionable public value are far more dangerous than headline deficits. Monetary realists argue for public investment with long-run returns in health, education, green energy and infrastructure. There is no room for vanity projects or elite bailouts.

4. Material and Ecological Limits. Money can be created without limit; resources cannot. The real economy is embedded in ecological systems with hard constraints. This means energy, arable land, raw materials and biosphere capacity are the critical issues. Fiscal policy must be aligned with sustainable, regenerative development, not perpetual financialised GDP growth for its own sake.

In short, understanding the reality of monetary operations invites greater responsibility, not reckless spending. It brings attention to real-world constraints, such as labour, infrastructure, climate and equity, rather than artificial financial constraints.

Beyond Finance: The Ideological Payload

Ratings agencies perform more than technical assessments, however. They are enforcers of a particular regime of accumulation. The Moody’s downgrade reinforces a number of key narratives and taken-for-granted homilies. Austerity narratives are amplified, pushing governments toward aggregate spending restraint under the guise of “fiscal responsibility.” Market-centric legitimacy, suggesting that trust in the state derives from its attractiveness to bondholders, not its capacity to deliver welfare, employment or ecological security, is put into doubt. Detached technocratic authority, which places unelected agencies at the centre of economic meaning-making, is seen to be a necessary corrective.

Far from being a neutral technical matter, however, the downgrade is ideology. It helps reassert the central mythology of America’s political settlement: that governments are households with credit cards, and must “live within their means.” This framing is especially potent in the U.S., where the downgrade will be used by deficit hawks to justify further cuts to public services, while promoting increased financial commitments to the military budget, thereby accelerating the political economy crisis that underpins the downgrade in the first place.

In deeper terms, the downgrade is a symptom of a fracturing regime of accumulation. The U.S. system, long sustained by the combination of dollar hegemony, global financialised asset demand, and internal consumer leverage, is starting to show stress at the seams.The downgrade reflects growing doubts, among investors, institutions and even allies, about the sustainability of that system. These doubts are amplified by political dysfunction, global shifts in economic gravity, and increasing geopolitical blowback against weaponised finance.

The Erosion of the Anchor: Things not Paper

The implications go beyond the U.S. Treasury market. Without a risk-free anchor, the pricing of all other financial assets becomes destabilised. Corporate bonds, mortgage-backed securities, derivatives and pension fund portfolios all rely on USTs as a benchmark. As Treasuries become “risky,” the very structure of modern global finance begins to wobble. Fund managers with mandates requiring exposure to risk-free assets face legal dilemmas. Portfolio optimisation models need retooling. Valuation frameworks shift.

Trump, perhaps unknowingly, has already killed the Treasury market. His aggressive use of tariffs, erratic policy swings and adversarial stance toward key trading partners have undermined the global appetite for dollar-based safety. In this sense, Moody's downgrade is not a lagging indicator of fiscal strain, it is a leading indicator of geopolitical decoupling.

If Treasury bonds can no longer serve as the anchor of the global financial system, what replaces them? What fills the void when “risk-free” no longer means “immune from politics”? What happens when even risk-averse capital begins to explore alternatives? These are the questions the Moody’s downgrade raises but cannot answer. Its performance is loud, but the script is tired. The real drama is unfolding beneath the stage, where a new system is already emerging. The preference for material things by the Gulf States perhaps reflects this growing preference for the tangible over the promises of fictitious capital.

A Broken Settlement

The U.S. postwar regime of accumulation and social settlement is unraveling. The U.S. regime of accumulation was founded on a set of reinforcing mechanisms. The USD has functioned as a global reserve currency. This has underpinned an international monetary order in which the USD served as the de facto global IOU, giving the U.S. the unique ability to import real goods in exchange for its own paper liabilities. Domestic growth was increasingly sustained not through rising wages but through rising asset values, consumer debt and credit-fueled speculation. Rising household indebtedness in the U.S., argued Johnna Montgomerie, a researcher now at the University of British Columbia, reflects a confluence of depressed real wages growth combined with the explosion of credit product creation from the 2000s onwards that exploited the cultural vulnerabilities of ‘keeping up with the Jones’s’. Globally, trust - or what passed for it - in the U.S. economic system was sustained by its dominant military-industrial complex and a global web of economic dependencies. These provided the conditions for expanded leverage across the private and public sectors with minimal immediate repercussions. Lastly, the regime of accumulation was premised on a symbiosis between U.S. financial instruments and fossil-fuel-exporting nations, notably the Gulf states, which recycled trade surpluses into U.S. assets.

This regime of accumulation is fragmenting under its own weight and internal contradictions. Expanded financialisation has gone hand in hand with the hollowing out of relative material productive capacity. Internationally, the spatial patterns of capital formation and production changed over the past 30 years in ways that have decentred the American economy insofar as circuits of material ‘use value’ are concerned. Technological development is no longer monopolised by the U.S., whose capacity to assert technological preponderance economically, military and culturally is now no longer unquestionably unilateral. The U.S. no longer dominates global energy either. Put plainly, there are real alternatives to America’s offerings, as I have pointed out previously.

Domestically, in the U.S., poverty has become hysteretic, reproducing itself generationally and geographically. Geographic inequality in the U.S. has been getting worse over the past 40 years, as pointed out in 2023 by the U.S. Department of Commerce. Life expectancy gaps between rich and poor are widening. A recent report by the Ludwig Institute for Shared Economic Prosperity found that for the bottom 60% of U.S. households, a "minimal quality of life" is out of reach. Public health failures, educational decay and housing unaffordability have created conditions ripe for political rupture. The promise of America - upward mobility, economic security, intergenerational progress - is no longer credible for large segments of the population. The American Dream is the lived daily nightmare of many.

Rising interest rates only worsen this. They do not discipline excess; they entrench inequality. As capital flows to rentiers and asset holders, productive investment stagnates. The very tools meant to restore financial confidence are tearing the social fabric.

The Downgrade as Sign

Moody’s downgrade reflects their assessment that U.S. Treasuries are no longer perceived as zero-risk assets. While this is technically a shift in financial market sentiment, it is more accurately interpreted as a rupture in trust in the broader viability of the institutional architecture and material foundations that sit behind the U.S.’s currency and capital markets.

The willingness of foreign actors to hold USDs is now in more doubt than at any other time in history. The recent multi-trillion-dollar deals between the Trump administration and Gulf states signal a shift: the Emirates are purchasing real assets - weapons, aircraft and chips - not USTs. This is, perhaps, less an endorsement of the U.S. economy than a sign of waning confidence in dollar-denominated claims. The global energy transition that continues to unfold is presaging the end of the petrodollar. Gulf states are preparing for a post-oil future. They are investing in renewable infrastructure and new technologies. In such a world, there is little logic in accumulating USDs tied to legacy fossil fuel arrangements. Financialisation is turning toxic. Interest rate hikes, intended to stabilise Treasury demand, are instead creating rising debt burdens for households and firms in the U.S., undermining demand and accelerating contraction. The result is a self-destructive feedback loop; that is, an autoimmune reaction in which the cure becomes the disease.

This breakdown has profound consequences. As borrowing costs rise, inequality deepens. Asset-rich households and institutions benefit from higher interest earnings and leverage. Meanwhile, lower-income groups face mounting debt, stagnating wages, and deteriorating services. This feeds into long-standing structural inequalities. Multigenerational poverty is locked in by poor health, underinvestment in infrastructure and geographical disadvantage.

From Pantomime to Policy Reality

The Moody’s downgrade is not the end, but it is a signal. It speaks not of impending bankruptcy, but of a crisis in the very model of American power. It is a warning that the world’s most powerful issuer of money may be running out of time, even as it cannot run out of dollars.

Moody’s and other credit rating agencies treat the U.S. government like any other borrower - a mistaken equivalence. The United States cannot involuntarily default on debt denominated in dollars because it controls the dollar’s issuance. The only real risk of default comes from political refusal to honor obligations (as with the debt ceiling), not financial inability.

Downgrades reflect not economic fundamentals, but a clinging to outdated fiscal metaphors: the idea that deficits are “dangerous,” debt must be “repaid,” and the federal budget must eventually be “balanced.” These narratives may be emotionally satisfying, but they are operationally false. In fact, persistent deficits are a feature, not a bug, of a sovereign currency system. This is because they are one of the two mechanisms by which net financial assets are injected into the economy, sustaining aggregate demand and enabling private saving. (The other is commercial bank credit creation, which I have not discussed here.)

Handwringing over government deficits and their ‘affordability’ leads to the wrong questions being posed.

Samuelson’s noble lie may have served a purpose in the postwar era. But today, the risks have flipped. What once restrained excess now enforces austerity. The false scarcity it creates hampers investment in infrastructure, education, health care and climate resilience. At the same time, it fails to address actual inflationary pressures, which rarely stem from government overspending and more often come from supply-side bottlenecks, price-setting power or sectoral imbalances. The imposition of tariffs across the board simply increases the risks of supply side shocks.

The debt ceiling standoffs and credit downgrades are not signs of fiscal recklessness, but of a deeper political dysfunction rooted in obsolete thinking. They are pantomimes, played out on a stage built in the 20th century, using props and lines that no longer match the world we inhabit.

As the United States elite clutch to the comforts of nostalgia, the rest of the world is moving on.