Fitch Ratings, one of the top international credit rating agencies, downgraded the United States government’s credit rating from the highest level of AAA to AA+.
The downgrade comes as a warning sign for the U.S. economy, which continues to grapple with surging debt levels and elevated deficits.
For comparison, the State of Alaska has an A+ rating from Fitch for general obligation bonds.
The key drivers behind Fitch’s decision to lower the country’s credit rating include the expected fiscal deterioration over the next three years, the high and growing general government debt burden, and an erosion of governance relative to countries with ‘AA’ and ‘AAA’ ratings over the past two decades.
The erosion of governance has been evidenced by repeated debt limit standoffs and last-minute resolutions by Congress, which have negatively impacted confidence in fiscal management.
Fitch highlighted the lack of a medium-term fiscal framework, a complex budgeting process, and limited progress in addressing medium-term challenges related to rising social security and Medicare costs due to an aging population.
The rating agency expects the general government deficit to rise to 6.3% of gross domestic produce in 2023, reflecting weaker federal revenues, new spending initiatives, and a higher interest burden.
The downgrade predicts that the general government deficit will further widen to 6.6% of GDP in 2024 and 6.9% of GDP in 2025, mainly driven by weak GDP growth in 2024, higher interest burdens, and wider state and local government deficits.
The interest-to-revenue ratio is expected to reach 10% by 2025, compared to 2.8% for the ‘AA’ median and 1% for the ‘AAA’ median, due to the increased debt level and higher interest rates compared to pre-pandemic levels, Fitch predicted.
The general government debt-to-GDP ratio is projected to rise over the forecast period, reaching 118.4% by 2025.
This is more than two-and-a-half times higher than the ‘AAA’ median of 39.3% of GDP and ‘AA’ median of 44.7% of GDP. Fitch’s longer-term projections foresee additional debt-to-GDP rises, posing greater vulnerability to future economic shocks.
Despite the challenges, Fitch acknowledged several structural strengths supporting the United States’ ratings, including its large, advanced, well-diversified, and high-income economy. Additionally, the U.S. dollar’s status as the world’s primary reserve currency provides the government with more borrowing and financing flexibility, at least for now.
However, the economic outlook for the United States is not optimistic. Fitch projects the economy will slip into a mild recession in the fourth quarter of 2023 and the first quarter of 2024. This projection is based on tighter credit conditions, weakening business investment, and a slowdown in consumption. Real GDP growth is expected to slow to 1.2% in 2023 from 2.1% in 2022, with overall growth of just 0.5% in 2024.
In response to the economic challenges, the Federal Reserve raised interest rates multiple times, with expectations of further tightening in the future. The Fed aims to bring inflation down towards its 2% target, but the persistent high inflation rate complicates their efforts.
“The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘A.A.’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions,” Fitch said in its announcement.
More details about the Fitch analysis of the nation’s fiscal health at this link.
Funny. I keep hearing the economy is just fine.
The high prices and occasional shortages are just Jedi mind tricks.
So are the smaller packages used to disguise many price increases. Then again, some products simply are no longer in the American marketplace because we are giving it all to China. Chicoms controlling the force? Dark side anyway…
Not much can be done here. Biden, Schumer and some spineless Republicans on the Senate Appropriations Committee have broken the traditional connection between government spending and paying for that spending through taxes. With the pandemic spending and the most recent Biden “infrastructure” spending blowout the Treasury and Federal Reserve “create” unlimited “money” out of thin air. We are now Argentina and Venezuela. In ten years it will be much worse and our country will begin to resemble an urban, third-world slum. Great work, Joey.
BRICS is starting to move to gold. There is writing on the wall for the instability of fiat money. We must go back to physical wealth stores instead of make-believe slave paper.
Were you aware the United States Constitution says that only gold and silver are money? The treasury minted coins out of gold and silver and all paper notes had to be backed up by an equal amount of the metals stored in government vaults.
When uninformed, unpatriotic leftists get their way, you have to expect this. For example look at all the democrat cities. You must really hate the republic to vote democrat.
Yeah….bidenomics…you know the thing!
Good job 81 million, now let’s all race to the bottom as America falls.
Did you celebrate the $1.6T Infrastructure spending? If so, this is on you.
Did you get unemployment payments plus extra funds during the COVID panicdemic? This is on you as well.
Do you support “forgiving” student loan debt? Yep, you own this as well.
Have a Ukraine flag flying in front of your house? Guess what? You are driving this country toward insolvency.
Want the military to pay for gender affirming surgery or abortions? Welcome to the “I caused the credit downgrading” club.
Is Government funded day care something you support? Guess what that will do to the national debt and our deficit spending? Yep, it will cause credit rating agencies to look negatively at us.
.
Every time someone says “the Government should…” your immediate response MUST be “Nope!” Otherwise, you are responsible for this downgrading.
you forgot forgiving 757 billion in PPP Loans
Yep. The list was getting a bit long…
This is great news.
My Iraq dinar that I’m holding will be valuable now. MAGA.
Same goes for our State Spending. Ounce they spend our Full PFD Checks, the next stop will be unlimited borrowing by the Uniparty, until Fitch says we are broke, and downgrades us. Our population base is too small and too poor to offset the billions in spending with taxes.
Unfortunately, for at least the last 40 years, the USA has been run by a war-mongering, cabal of instititutionalized federal bureaucrats who embarked on a multitude of regime change misadventures around the world that, while very profitable for the Washington, DC elites, left the rest of the country deeply in debt. The latest example of this is the war in Ukraine. Congress cannot shovel money into that rathole fast enough, even though we have to borrow that money & once again the political elites ( Bidens, Pelosi’s, Romneys, et al) get their cut by way of bribes & kickbacks, while everyday Americans watch helplessly as their savings are decimated by Biden’s inflation. Keep your eyes on the military coup that just recently occurred in Niger. Biden neocons are threatening Nato intervention if the puppet government there is not reinstalled.
AAA and AA+ is pure deception — lying.
If a true A through F scale was used and honesty, what would the rating actually be?
Perhaps D?
Even if it were a ‘D’ (I agree with you that it’s more like a ‘D’ than an ‘AA+’), it shouldn’t exist. Let’s get rid of usury/compound interest worldwide. Usury has always been a means to control rather than a financial instrument
Comments are closed.