United States AAA Credit Rating Lowered by Fitch: The Impact of Growing Debt and Fiscal Deterioration

Posted on August 14, 2023

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For the second time in its history, the United States has seen the AAA rating of its this long-term lowered by one rating agency.

Fitch Ratings said the downgrade of the United States, which is now rated AA+, “reflects the expected fiscal deterioration over the next three years, a high and growing public debt burden, and the erosion of governance relative to AA and AAA rated peers over the past two decades, which has manifested itself in repeated deadlocks on the debt limit and last minute resolutions”.

Following the downgrade, the first since S&P downgraded the United States in 2011 during a similar showdown over the debt ceiling, Democratic politicians and White House officials immediately attacked Republicans and Fitch.

Senate Majority Leader Chuck Schumer (D-NY) said:

“Fitch’s downgrade shows that Republicans’ short-sighted attitude and flirtation with defaulting is having negative consequences for the country.”

For her part, Treasury Secretary Janet Yellen criticized Fitch, calling the decision “flawed” and “totally unwarranted”. Karine Jean-Pierre, press officer, echoed the Secretary of State.

“It is contrary to reality to downgrade the United States at a time when President Biden is driving the strongest recovery of any major economy in the world,” Ms. Jean-Pierre said. (CNN inexplicably attributed thedowngrade to January 6while Fitch does not mention this event in its report, which occurred two and a half years ago).

Such a reaction should perhaps not surprise us.

Pointing fingers and blaming others is what politicians do best. Yet pointing fingers won’t change a troubling reality: the federal government faces a tough fiscal situation.

Most people probably don’t even know that in June the national debt hit $32 trillion. If you find this odd because it seems like yesterday the national debt was $20 trillion, you can be forgiven. It was practically the case.

It was in 2017 that the national debt reached $20 trillion. You read that right: the US government has amassed an astounding $12 trillion in six years. Unfortunately, this spending spree will have serious consequences for the future of our children and grandchildren.

The federal government is currently paying an unprecedented amount to pay the interest on its debt: $476 billion in 2022, an increase of 35% compared to the previous year.

According to the nonpartisan Peter G. Peterson Foundation, Americans are expected to spend $9 trillion in interest on the debt over the next decade, making it perhaps the single largest federal expenditure in coming years, in the world. detriment of other programs.

Washington lawmakers seem unaware of the threat.

Despite record revenues, federal spending continues to exceed tax revenues at an increasing rate. In May 2022, the Congressional Budget Office (CBO) estimated that the federal government would accumulate $15.7 trillion in new debt over the next decade; this year, the CBO adjusted that figure to $19 trillion, largely due to legislative changes.

That’s not to say the debt ceiling drama didn’t play a part in Fitch’s downgrade; this is clearly the case. What proponents fail to say is that the stalemate stems from the other causes Fitch alluded to in its downgrade: “expected fiscal deterioration” from the federal government and “growing government debt burdens.” public”.

These are serious threats, and instead of pointing fingers at Fitch and the Republicans, the White House and Mr. Schumer should be concerned. Instead, Democrats are calling for thecancelation student debt, a system health insurance for all and one bigger pentagon.

There is a disturbing disconnect with reality. It’s not unlike those who insist that the historic inflation that began in 2021 is due to “corporate greed,” not the trillions of dollars the Federal Reserve printed to flood the world. currency economy.

The Biden administration is of course not solely responsible for this debt. But it’s time for leaders to come clean about this fiscal recklessness, which history shows is harder to fix than it looks due to perverse incentives and corruption. it generates.

America’s founding fathers warned of these dangers. James Madison called the public debt “a public curse, and in a republican government a curse greater than any other.” Benjamin Franklin called her a threat to freedom.

To maintain our independence, “we must not allow our rulers to burden us with perpetual debt”, to have you Thomas Jefferson.

People, especially leaders in Washington, ignored these warnings. Unfortunately, it is the generations of tomorrow who will pay if we do not learn from our mistakes.

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2023-08-14 03:02:41


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