Exchequer

How Do You Say “Subprime” in French?

The French, God bless them, are picky about what foreign words get adopted into their language. But I was not surprised to see that one hated Anglo-Saxon term has made it into the Francophone world unmodified: subprime.

France is on the verge of losing its AAA sovereign credit rating. Other European nations surely will follow.

This is a good news / bad news thing for the United States, I think. Short term, we will continue to benefit from the flight to the dollar and U.S. Treasury bonds — so long as the world does not offer much of an attractive alternative, our debased currency and our flimsy government securities will continue to look good, and so we’ll enjoy a meaningful subsidy. But it’s the subsidy that comes from being at the end of the domino line rather than at the beginning. The longer Washington enjoys artificially cheap borrowing and a propped-up dollar, the worse it is going to be when it comes down. The problem is the boom, not the bust. Even if the boom hasn’t felt like much of a boom.

Wildcard: Chinese inflation. If inflation continues to run high in China, those relatively low-yield investments in Treasuries and other sovereign debt are going to start looking a lot less attractive, no? The portion of our publicly held debt owned by the Chinese government and Chinese institutions under government control is often exaggerated, but it is still a big chunk. China is still a very poor country — one where food prices are going up at an uncomfortable rate. Beijing might very well decide to buy fewer bonds and more rice, or decide to hold fewer U.S. dollars and more oil.

Question: When does the United States lose its AAA rating? Give me your predictions in the comments section.

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