Regarding the recent U.S. debt downgrade, it's crucial to understand a significant limitation of traditional credit ratings: they primarily assess the risk of the government defaulting on its debt obligations – essentially, failing to make payments.

However, this narrow focus overlooks a potentially greater risk for bondholders: inflationary devaluation.

Consider this: instead of outright default, countries facing substantial debt burdens might resort to printing more money to meet their obligations. While bondholders would still receive the nominal amount they are owed, the value of that money would be significantly eroded by the resulting inflation.

This means the real purchasing power of the returns would diminish, leading to a loss that isn't captured by standard credit ratings.

In essence, for investors who prioritize the real value of their assets, the risks associated with U.S. government debt extend beyond the possibility of non-payment.

The potential for inflationary policies to devalue the currency in which the debt is denominated presents a more insidious threat to the long-term value of these holdings. Therefore, relying solely on credit ratings may provide an incomplete picture of the true risks involved in holding U.S. government debt.

Investors should also consider macroeconomic factors and the potential for monetary policy decisions to impact the real returns on their investments.

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