Moody’s Investor Service downgraded the United States’ credit rating from a top-tier rating of AAA to AA1 due to rising government debt. Fitch Ratings lowered the US debt in August 2023 for the same reason in August 2023, and while Moody’s did not officially act at the time the agency warned that the US was at risk of a downgrade.
The United States has enjoyed AAA status since 1917—this downgrade is a dire warning. At the current trajectory, the $36 trillion+ deficit is expected to advance from 5.4% of GDP in 2024 to around 9% by 2035. Moody’s believes the United States still offers “exceptional credit strengths,” but debt and payment ratios are now “considerably higher than those of similarly rated sovereign entities.” The agency also cited political instability as a concern, as Republicans and Democrats have been unable to align on methods to meaningfully reduce the deficit.
Treasuries rose following Friday’s downgrade, with the 30-year rising above 5% and the 10-year reaching 4.54%. Investors see a larger risk in government debt and are demanding increased compensation for holding it.
America no longer has the “gold standard” symbolic rating that for years signaled to investors that the US was the safest place to park reserves. This could be a hit to overall confidence, yet there is no better alternative than the US. Increased borrowing costs will only cause the deficit to rise. The government pays an astronomical fee to simply service its debt, with projections from the Congressional Budget Office for 2025 slated to be $952 billion. The US has already paid out $579 billion in the first seven months of FY2025 simply for the burden of holding such an asinine amount of debt. Debt servicing costs are expected to surpass the $1 trillion mark by 2026, with total interest payments over the next decade rising to $13.8 trillion.
I proposed a solution years ago, but no one will listen.
