Editor's note: Warwick Powell is an adjunct professor at Queensland University of Technology and a senior fellow at Taihe Institute. The article reflects the author's opinions and not necessarily the views of CGTN.

Moody's recent downgrade of US Treasury creditworthiness, citing "unsustainable debt levels," is less a reflection of fiscal reality and more an echo of economic mythology. The agency's framing presumes that the US federal government can go broke like a household or a business. This is both misleading and dangerous.

To understand why, we must first address a fundamental misconception: When we talk about public debt in the context of a currency-issuing government like the United States, we are not talking about debt in any conventional sense. Households, businesses, and states or local governments must earn or borrow money before they can spend it. They operate under financial constraints. The US federal government, by contrast, is the issuer of the currency. It does not need to borrow its own money in order to spend. It spends first, by crediting bank accounts, and then, under current law, issues bonds to match the deficit.

In this sense, US Treasury securities are not borrowing in the ordinary sense of the word. You can't borrow what doesn't already exist. In this case, the dollars exist because the government spent them into the system to begin with. Treasury bonds are best understood as interest-bearing instruments issued after the fact, not prerequisites for spending. They serve as a tool for managing bank reserves and providing safe assets to investors, not as a source of funding in any meaningful operational sense.

The term“public debt," as it applies to a monetary sovereign, is thus a misnomer. It obscures more than it reveals. The use of the word "debt" implies an obligation to repay in scarce resources, but in the case of sovereign governments, what's being “repaid” is more of what the government can issue without limit: Its own currency. The risk, therefore, is not insolvency. It is a misunderstanding of what the real constraints actually are.

Let's restate the basic fact: The US government issues its own currency. It cannot "run out" of dollars any more than a scoreboard can run out of points. It does not need to "earn”or "borrow" dollars to spend them. When the US Treasury spends, it instructs the Federal Reserve to credit bank accounts. When it sells bonds, it is not raising money to spend; it is offering an interest-bearing asset to the private sector in exchange for reserves the government itself has created.

This is not economic heresy. It is how modern monetary systems work. The US is a sovereign, fiat-currency issuing government. It cannot involuntarily default on its debt denominated in its own currency.

So when Moody's claims that rising debt poses a risk of insolvency, they are not merely mistaken; they are misrepresenting the nature of sovereign finance. Their analysis implies that the US operates like a developing country borrowing in a foreign currency, or a Eurozone member constrained by the European Central Bank. This is not the case. The federal government's "credit risk" is essentially political: A failure by the US Congress to raise the debt ceiling, for example, not a lack of money.

If solvency isn't the issue, what is? One answer lies in the redistributive effects of government debt, especially when interest rates rise. With Treasury yields now well above recent historical averages, interest payments on the debt are becoming one of the largest federal outlays, exceeding even defense spending. But unlike public investments in infrastructure, education, or health, these interest payments do not build productive capacity or strengthen long-term growth. Instead, they flow overwhelmingly to bondholders, financial institutions, corporations, wealthy individuals, and foreign central banks.

In this sense, the US national debt is less a fiscal time bomb and more a pipeline of wealth redistribution upward. Government deficits create financial assets for the private sector. When those deficits take the form of interest-bearing securities, and rates rise, the flow of income to the top accelerates. This is not the unfortunate byproduct of fiscal policy. It is part of its design in a system where the bond market serves as a central node of wealth preservation.

Rising interest rates, ostensibly in the name of "fighting inflation", compound this effect. They reward holders of financial assets while raising the cost of credit for working households and small businesses. In effect, monetary policy has become a tool not just for macroeconomic management, but for reinforcing existing inequalities.

If the US cannot go broke in its own currency, what then is the real constraint on public debt? The answer lies not in domestic finance but in external demand for the US dollar.

The US enjoys a unique position in the global economy: Its currency functions as the world's de facto reserve. Foreign governments, firms, and investors hold US Treasuries as a store of value. Commodities like oil are priced and traded in dollars. Global banks settle transactions through the US financial system. This exorbitant privilege gives the US government an extraordinary freedom to issue debt without triggering capital flight or currency collapse.

But this system rests on more than trust. To be sure, the risk of capricious interventions, such as sanctions or asset confiscation, can make it untenable for other countries to hold too much US dollars. However, the material foundation of the dollar's global dominance is the US economy's capacity to produce goods and services that others want. If the US economy does not deliver real, tangible goods and services, goods that other nations need, then the material basis for holding large quantities of US dollars diminishes. In other words, the dollar's role as the global reserve currency depends not just on the trust that the US government will not seize or freeze assets, but on the US economy's ability to offer goods and services that make holding dollars a practical necessity for foreign actors.

De-dollarisation is not a threat to America's ability to pay its bills. But it is a challenge to the structural role of the dollar as a global IOU. If foreign appetite for Treasuries wanes, the US will not go bankrupt, but the political economy of debt will change. Domestic actors will have to absorb more of the debt under prevailing laws. The cost of borrowing may rise. And the US may find that its ability to externalise inflation and import real goods in exchange for paper claims has limits.

In addition to these dynamics, a growing shift away from global dollar demand may well force a deeper reckoning: Whether the legal requirement for the US Treasury to issue bonds to "fund" deficit spending still makes sense in a world where the government creates the currency it spends. This rule, rooted in outdated monetary thinking, effectively converts fiscal operations into opportunities for private wealth accumulation via interest payments, rather than allowing for a more direct, transparent use of public money for public purposes. Rethinking this constraint could open the door to a more efficient and equitable fiscal architecture.

When Moody's downgrades US Treasuries on the basis of "unsustainable" debt, it invokes an image of looming fiscal collapse, as though the government may one day be unable to pay its bills. But this misreads what's truly at stake. The US government can always meet its obligations in dollars because it issues the dollar. The real question is not one of solvency, but of political and economic sustainability.

The deeper risk is that the current structure of public finance, with rising interest payments flowing disproportionately to the top, and public investment constrained by artificial debt limits, may become socially and politically untenable. Sustainability, in this context, means whether the US can maintain a social settlement in which the benefits of economic growth are broadly shared, productive investment is prioritised over rentier enrichment, and the dollar remains acceptable not just as a domestic unit of account but as a global store of value.

If "fiscal credibility" is to mean anything useful, it should refer not to pleasing ratings agencies, but to maintaining the economic foundations of a stable, prosperous society. That means investing in infrastructure, education, health, and climate adaptation rather than being fixated on debt-to-GDP ratios that say little about real capacity or risk.

The real risk facing the US is not technical insolvency, but a deeper political and economic fragility. The risk is that its public finance system continues to enrich bondholders while underfunding the public goods that sustain a healthy, cohesive society. The risk is that the rest of the world would increasingly question the legitimacy of the dollar's role, not because of "too much debt," but because of economic incapacity, political dysfunction and social erosion.