There is every chance that whoever wins the next presidential election will take a similar attitude to the budget deficit as the one espoused by President Reagan in 1986 when he famously said: “The deficit is big enough to take care of itself.”
Now the deficit is larger than it was when President Reagan uttered these remarks and the debt to GDP ratio is much higher. Meanwhile, the signs of rupture in the political culture following Donald Trump’s legal woes continue to cause worries about what may lie ahead.
This is the background to the recent downgrade of America’s credit rating by Fitch, which led to a chorus of protests by many Democrat-leaning economists. It is true that credit rating downgrades can be quixotic and often don’t have much impact on the markets. This one didn’t seem to cut much ice.
Instead, market practitioners were more…
