Crypto News: Economics Daily: Perpetually unsustainable?

I'm Chris Anstey, a senior editor for economic policy in Boston, and today we're looking at the US debt trajectory highlighted by Fitch. Send us feedback and tips to ecodaily@bloomberg.net or get in touch on X, the social media platform formerly known as Twitter, via @economics. And if you aren't yet signed up to receive this newsletter, you can do so here.

China's economy is running at two speeds, with property a drag and exports declining while services and high-tech manufacturing boom
The Bank of England raised interest rates to a new 15-year high, warning that its fight against inflation may require tighter borrowing conditions for a prolonged period.
ECB Executive Board member Fabio Panetta says keeping rates at their peak is becoming as crucial as how high they're lifted.

A top IMF official warned in 2010 that Japan shouldn't just think of a then-beleaguered Greece "as a fire on the other side of the river." It was vital to assemble a credible fiscal plan, he said.

Japan's gross government debt-to-GDP ratio at the time was 206%. This year, the IMF projects it will be 258%, and nobody's talking about Japanese default risk. So, maybe a credible plan wasn't so vital after all.

The US ratio is penciled in at 122% of GDP for this year, climbing to 136% by 2028. Only time will tell if that trajectory is unsustainable.

For Fitch Ratings, the path, and concerns about Washington's ability to navigate it, was worrying enough this week for it to remove the US from the ranks of sovereigns with a AAA grade.

But Japan, at the time the world's No. 2 economy, lost that rating more than two decades ago with no consequence for its borrowing costs or currency.

So debt doesn't matter for a developed nation? Not quite. The euro crisis of 2010-13 showed that excessive borrowing can indeed get an economy in major trouble, and Greece hemorrhaged jobs and output for years. More recently, the UK government was forced to backtrack on a fiscal plan after a selloff in its bond market.

In 1993, Washington was so gripped by concerns about too much borrowing that then-President Bill Clinton's aide James Carville quipped that if there was reincarnation, "I want to come back as the bond market. You can intimidate everybody." Lawmakers and the White House went on to cut spending and raise revenues.

Each of those episodes indicates it will take financial-market pain to force fiscal discipline. Indeed, Japan's lack of any major debt selloff may explain why its borrowing has simply continued to swell.

Former US Treasury Secretary Timothy Geithner said Wednesday he's hoping it won't take a crisis to change the debt trajectory. And he warned of the need to "act before it's late and hard." His predecessor Hank Paulson added, "The longer we wait, the more painful the solution will be."

So will there be a reckoning? Anna Wong, chief US economist for Bloomberg Economics, said it's worth paying attention to Fitch's warning. There were "good reasons" for the downgrade, she said. And it "may draw more scrutiny to the grim fiscal data, which investors filled with soft-landing optimism may have overlooked."

Brazil's central bank lowered its benchmark interest rate by 50 basis points and said future cuts are likely to be of the same magnitude.
Turkish inflation ended its eight-month deceleration in July, putting it on track for a surge that the central bank only expects to peak closer to the middle of next year.
Almost a third of Chinese provinces recorded shrinking investment in the first half as local governments and companies cut back on spending.
A tight US job market and a push for a diverse workforce are leading more companies to consider hiring people with criminal records. Meanwhile, fewer Americans can afford to foot a $400 emergency expense compared with last quarter.
Ice vests and adjusted hours are being offered to workers at some of South Korea's biggest companies to protect staff from stifling heat as the nation braces for more scorching weather this month.

Will signing expensive footballers like Cristiano Ronaldo break Saudi Arabia's finances? No, because the total spending is still relatively small, according to new research by Bloomberg Economics.

But sports outlays and the construction of futuristic cities such as Neom increase import expenditures, thus requiring a higher oil price to pay for them, says BE Chief Emerging Markets Economist Ziad Daoud.