The US government's debt has been downgraded. Here's what to know
S E E D E D C O N T E N T
WASHINGTON -- Late Tuesday, Fitch Ratings became the second of the three major credit-rating firms to remove its coveted triple-A assessment of the United States government's credit worthiness, a move that spurred debate in Washington about spending and tax policies.
Fitch cited the federal government's rising debt burden and the political difficulties that the U.S. government has had in addressing spending and tax policies as the principal reasons for reducing its rating from AAA to AA+.
Fitch said its decision "reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance" compared with other countries with similar debt ratings.
The downgrade may have little impact on financial markets long-term or on the interest rates the U.S. government will pay. Here's what you need to know:
Fitch's move comes just weeks after the White House and Congress resolved a standoff on whether to raise the government's borrowing limit. An agreement reached in late May suspended the debt limit for two years and cut about $1.5 trillion in spending over the next decade. The agreement came after negotiations approached a cutoff date after which Treasury Secretary Janet Yellen had warned the government would default on its debt.
The Biden administration reacted angrily to the move. Yellen said Wednesday that Fitch's "flawed assessment is based on outdated data and fails to reflect improvements across a range of indicators, including those related to governance, that we've seen over the past two and a half years."
"Despite the gridlock, we have seen both parties come together to pass legislation to resolve the debt limit," Yellen said.
But Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office, said that Fitch's decision was the right one, given that there are few efforts in Washington to address the government's longstanding budget deficit.
"This is about a fundamental mismatch over the long term between our spending growth and our revenue capabilities," he said.
Standard & Poor's removed its coveted triple-A rating of U.S. debt in 2011, after a similar standoff over the borrowing limit.
Fitch said that the ratio of U.S. government debt relative to the size of its economy will likely rise from nearly 113% this year to more than 118% in 2025, which it said is more than two-and-a-half times higher than is typically the case for governments with triple-A and even double-A ratings.
WHAT TYPICALLY HAPPENS WHEN DEBT IS DOWNGRADED?
Ratings agencies like Fitch and its counterparts, Standard & Poor's and Moody's Investors Service, rate all kinds of corporate and government debt, ranging from local government bonds to debt issued by huge banks.
In general, when an issuer of debt has its credit rating downgraded, that often means it has to pay a higher interest rate to compensate for the potentially higher risk of default it poses.
WHAT COULD THAT MEAN FOR U.S. TAXPAYERS?
Many pension funds and other investment vehicles are required to only hold investments with high credit ratings. If a city or state, for example, sees its credit rating fall too low, those investment funds would have to sell any holdings of those bonds. That would force the government issuing those bonds to pay a higher interest rate on its future bonds to attract other investors.
If that were to happen to U.S. Treasury securities, the federal government could be required to pay higher interest rates, which would push up interest costs for the government and taxpayers.
WILL U.S. BORROWING COSTS RISE?
Few economists think that such an outcome will actually occur. Instead, they think Fitch's downgrade will have little impact. Few pension funds are limited to holding just triple-A rated debt, according to Goldman Sachs, which means the current AA+ from Fitch and Standard & Poor's will be sufficient to maintain demand for Treasurys.
"We do not believe there are any meaningful holders of Treasury securities who will be forced to sell due to a downgrade," Alec Phillips, chief political economist for Goldman Sachs, wrote in a research note.
Large U.S. banks that are required by regulators to hold Treasurys won't see any changes in those rules just because of the downgrade, Phillips added in an interview, because regulators will still see them as safe investments.
For most investors, U.S. Treasury securities are essentially in a class by themselves. The U.S. government bond market is the largest in the world, which makes it easy for investors to buy and sell Treasurys as needed. The United States' large economy and historic political stability has led many investors to see Treasurys as nearly the equivalent of cash.
Rating agency downgrades typically have more impact on smaller, lesser-know debt issuers, such as municipal governments. In those cases, even large investors may not have much information about the creditworthiness of the bond and are more reliant on the ratings agencies, Phillips said.
Yet that isn't really the case for Treasury bonds and notes, he said. Large investment funds and banks form their own opinions about Treasury securities and don't rely on the ratings agencies, he said. Fitch's analysis also didn't provide much new information, he added. Other entities, such as the nonpartisan Congressional Budget Office, have made similar projections about where U.S. government debt is headed.
"Nobody's holding Treasuries because of the ratings," Phillips added.
WHAT DOES FITCH MEAN BY 'GOVERNANCE'?
Fitch cited a decline in "governance" as a key reason for its downgrade, a reference to the repeated battles in Washington over the past two decades that have led to government shutdowns or even taken the government to the brink of a debt default.
"The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management," Fitch said.
At the same time, Fitch is referring to the inability of even compromise legislation to meaningfully address the long-term drivers of federal government debt, specifically entitlement programs for the elderly such as Social Security and Medicaid.
"There has been only limited progress in tackling medium-term challenges related to rising social security and Medicare costs due to an aging population," Fitch said.
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"This is about a fundamental mismatch over the long term between our spending growth and our revenue capabilities," he said.
The inevitable consequence of the reckless government spending & printing of money.
Who would have thought.... you'd be agreeing with me, and I'd be voting you up.
There may be hope for this country.
You should not be surprised by me holding a fiscally conservative position.
This is what I oft reference when I suggest that people should NOT operate on stereotypes and assume partisanship. To wit, just because I disagree with you on issues such as Trump, Fauci, China conspiracy theories, etc. does not mean that I necessarily disagree with you on other matters.
I cannot say I'm surprised.
Between our soaring debt, inflation and this downgrading, servicing our colossal debt will get evermore expensive.
Remember, thank your local Democrat.
see @4
See @3
Per Jeremy @3 :
Partisan blindness ⇡ :
The national debt has been a bipartisan failure going back several decades. It is not strictly the failure of Ds. Blind partisanship distorts one's ability to comprehend reality.
R
Yes and recent analysis by the CBO finds:
Here is another chart showing Government Debt up to more recently. The uptick it recent months is starting to look like the rate of increase after the pandemic.
This iframe is not allowed
source: tradingeconomics.com
The spending related to the pandemic that began during Trump's administration certainly made a huge difference in the rate of increase. It also illustrates that once that rate of increase starts, it rarely goes away. That appears to be the issue with spending and tax increases, once they start, they rarely come back down to a level lower than when they started. Politicians on both sides of the aisle are responsible for this, although I agree that it is silly to heap the blame (or credit if the debt rate slows) on just a President.
HERE is an interesting analysis of the historical deficits, presidents and congress for what its worth. Another HERE about the accumulated debt and how we got here.
Here is the chart that would not load.
Definitely a a both party problem, but hardly equal --
FY 2021 End of Trump, deficit $1.5T
FY 2017 End of Obama, deficit $666B
FY 2009 End of Bush II, deficit $1.9T
FY 2001 End of Clinton, deficit $133B
FY 1993 End of Bush I, deficit $347B
FY 1989 End of Reagan, deficit $255B
FY 1981 End of Carter, deficit $90B
There are several ways to interpret the data, and again, just looking at the president rather than also the Congress and more importantly the global or economic events at the time is folly.
I linked to this article above and it is worth a read
Which party had power when the federal debt rose the most?
Their conclusion?
Agreed.
I was speaking of the national debt. You are speaking of the budget deficit. Both are problems of both parties, but to me the national debt is of much greater concern. And, certainly, the parties have not been in lockstep. Also, we should tie both more to Congress and not as much to the PotUS.
I believe the president has had a lot of power starting with Reagan because the house & senate have been divided such that a presidential veto cannot be overridden by one party. This is important because costly legislation, e.g. a massive tax cut that primarily benefits the already rich, can be stopped by veto. That's why cuts like these always happen under Republican presidents. The same thing goes for the costly wars and war mongering.
Debt is the wrong stat to look at. The deficit causing the rise in debt is what you should be looking at. Assigning increases in debt to a particular congress/senate/presidency is nonsensical because it's not possible for a change in the house/senate/presidency to have a quick effect on the deficit. You are assigning responsibility for a debt caused by a deficit which the new occupant(s) inherited. Policy changes are required and they take time to have effect. You should look at what happens over at least a 4 year period. That and the veto power of presidents is why I look at the deficit over presidencies.
For Reagan through Trump, even excluding the Pandemic, we go into Republican presidencies with deficit x and pop out the other end with a deficit of 2x, 3x, 4x+. The opposite is true for Democratic presidencies. The marginal tax rate on the rich goes down under Republican presidencies and up under Democratic. Republicans don't fare well with unemployment either. I'm financially conservative and Republican financial policies are irresponsible. Look the GWB presidency: two tax cuts, two wars, a new Medicare drug benefit, but no new taxes or spending cuts to pay for anything. Even if you exclude the wars from the deficit, which GWB did, it's still a bad number (which isn't the deficit).
If a tax cut pays for itself, then the deficit should not increase. If the economy is growing, then the deficit should not increase. I stand by this method of judging financial responsibility.
What always has amazed me is the President getting credit or blame for the deficit, the president can only spend what congress gives him. Blaming Obama or Trump is inaccurate, sure they have to sign the budget, that's if they ever actually got one. The true people responsible for our downgrade are our representatives.
Indeed. Also, the effect on an economy is often delayed. Thus legislation / actions that might affect the economy are more likely to do so in the next term (and this might be a different PotUS).
Bidenomics at work.
What makes this even more laughable is the idiots in the WH are actually trying to place blame of this on Trump.
Democratic talking points to deflect from Biden failures.
I imagine we'll see another "indictment" come down in the next 24 hours. Just like every other time Biden fucks up.
As if none of this is Trump's own doing. Open your eyes.
What is? You claiming the indictments aren't being rolled out to distract from Biden's fuck ups?
I claim that the indictment for the Big Lie con-job is a consequence of Trump's wrongdoing.
Do you recognize that it was wrong for Trump to organize fake electors in seven states, to suborn Pence to table certified votes, to coerce officials to find votes and/or declare their state votes in question, etc.?
You will no doubt do what you have always done and refuse to even acknowledge wrongdoing by Trump.
At this point, all anyone can do is properly hold such pathetic hyper-partisan behavior in contempt.
That's not what I'm talking about. Please try to keep up.
So you will be willing to admit that Hillary was wrong for doing this?
Where are her damn indictments? As well as those electors that tried to usurp the system they swore to uphold?
We already know Hillary is guilty as sin for mishandling classified documents, destroying evidence, government devices, and bleach bit her personal hard drives and server when under subpoena to turn it over.
Two tier justice at it's finest. Selective enforcement, not to mention stretching the law, at it's finest. Keep screaming "but Trruuummmmppppp!!!!!!" all you want. It won't excuse the fact that the system is protecting the Clintons and Bidens; while trying to attack the number one Democrat political opponent with the DOJ/FBI.
Either the laws apply to everyone equally; or no one at all.
Democrats are pushing hard for the day when they will apply to no one. We are done as a country when that happens.
[deleted]
Amazingly enough, if you asked who has been President when our credit rating has been downgraded, two of those people would still have their hands raised.
Of course you run away rather than acknowledge Trump's wrongdoings. Pathetic.
I am truly sick of trying to get people like you to comprehend that not everyone is a partisan. I know it seems impossible for you to understand this, but reality is not simply what the GOP says vs. what the D party says. You cannot determine right vs. wrong by merely checking to see if an R or D is involved. This binary partisan 'thinking' is foolish and causes people like you to routinely be on the wrong side of truth.
I have also stated numerous times that I do not like Hillary Clinton as a candidate and would never vote for her.
I have also, on several occasions, freely acknowledged Clinton's wrongdoings. That said, what she did is substantially different than what Trump has done. Further, Trump's collective wrongdoings dwarf those of any other contemporary politician.
Attempt to comprehend that the world is not a simplistic binary reality and maybe your comments will begin to be less emotional and less ridiculous.
Who said anything about convictions? I explicitly used the word 'wrongdoings' to connote recognition of wrongful acts prior to a formal finding of guilt.
Do you think I was referring to convictions when I spoke of Clinton's wrongdoings? Any of this getting through?
This endless obtuseness from Trump defenders is waaaaay past its prime. Open your eyes, Dennis, Trump has clearly engaged in many wrongdoings and those acts have resulted in several indictments and formal charges. If tried, he might be convicted and then these wrongdoings will result in legal accountability.
Now, do you acknowledge that Trump has wrongfully lied to the world that the USA electoral process was rigged, that Biden is NOT the legitimate PotUS and the tens of millions of USA voters have been disenfranchised? (And this is just the tip of the iceberg.)
Do you hold that this latest indictment consists of nothing but invented charges ... that it is a formal lie?
What's pathetic is you continually bringing up nonsense over and over again. You ask me all this about a month ago. I answered your moronic questions. Now just because I didn't answer them to your liking you can't seem to move on and have trolled me with it since.
Now, in this context, as I stated, I'm not talking about that. If you can't understand that then find somebody to explain it to you on your level.
That is a lie; you have deflected on every turn (as you have here) rather than acknowledge wrongdoing by Trump. Even when faced with the most obvious wrongdoings — that of lying that the USA electoral system was rigged, that Biden is not the legitimate PotUS, etc. you deflect.
A witless retort. You just claimed that you could not comprehend my post. That is your problem.
Here is the basic breakdown. A wrongdoing is different from a conviction. The former can be determined without a trial, the latter requires a trial.
For example, was it wrong for Trump to lie that the election of 2020 was rigged and that he actually won?
You do not need a trial to determine this. But you need to have the courage to make a statement of your own rather than obsequiously follow your party.
Looks like you are falling into the rabbit hole.
Get out while you can.....
What I told you, a month ago, was to provide me the proof. I'm not going to just go along with your blathering because YOU said it. To date, all you've done is spam the same nonsense over and over to not only me but anybody who has a differing opinion.
What he's doing is questioning the results of the election. Which is perfectly legal and has been done by several politicians over the years. But because it's Trump, you all have your panties in a wad. More than likely because the Democrats Big Lie failed miserably.
The thing with this indictment, it's exactly what Trump wanted. Now it has to be proven that there the election was 100% by the books. With the reported irregularities in the 2020 election, that's going to be difficult.
trump fired the guy he installed for election integrity, after that guy said it was the most secure election in history.
I asked you: "Was it wrong for Trump to lie that the USA electoral system was rigged and that he actually won, to claim Biden is not the legitimate PotUS and to claim that tens of millions of his supporters have been disenfranchised?"
You demanded proof. Proof of something we have all seen and heard with our own eyes and ears from Trump's mouth.
Even so, I provided you proof. I delivered a video of Trump's speech on election night where he stated the above lies.
You refused to acknowledge that he lied and refused to answer my question on wrongdoing.
Instead you deflect and, as you are doing now, continue to lie.
"A witless retort."
I love it.
Perfect for a lot of the statements here.
1. I don't care.
2. I answered you.
And yet you can't link any of it.
Just as you refuse to do the same for the Democrats. In fact, when I mentioned the Democrats Big Lie, you went off on a tantrum.
It's funny that only 2 sentences sent you off the deep end.
You continue to lie. You do not answer, you deflect.
Bullshit. Another lie. I have no problem criticizing the Ds. You have nothing but lies.
You refuse to even acknowledge that Trump lied about the election. Zero credibility.
Well, that sounds like something you are going to have to work through. Not my problem.
Oh, no! What will I ever do? The person who has been trolling me with BS thinks I have zero credibility. Oh the humanity!!!!!!
Why keep somebody around who, apparently can't do their job? Oh wait....you all are keeping Biden and Mayorkis.... never mind.
What you will never do is persuade a rational, objective person; running away from the most obvious, undeniable questions shows you have nothing but blind partisan bullshit to offer.
NEXT!!!!!