Fitch Downgrades US Credit Rating
For only the second time in US history, the credit rating of the United States was downgraded. Fitch Ratings, one of the Big Three credit rating agencies, lowered the US long-term rating from AAA to AA+. They said the downgrade reflects a worsening economy and runaway national debt. The impact of the downgrade holds long-term worldwide negative consequences.
“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 ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolution,” Fitch said in an announcement of the change.1
The downgrade came after a last-minute bipartisan deal in June. That deal suspended the US debt ceiling until early 2025. But the deal was struck after months of deadlock on Capitol Hill. The standoff threatened to hurl the country into a disastrous default.
Treasury Secretaries Weigh In
Henry Paulson was Treasury Secretary under George W. Bush. He said there is no example of a major power staying in power after they lose their fiscal strength. Paulson called the downgrade a “very important wake-up call.” Paulson said the debt may not be an immediate worry. But it is a major long-term concern because US debt is considered one of the safest interest-bearing investments in the world. Loss of that status could send markets floundering. 2
Tim Geithner was Treasury Secretary in 2011 during the Great Recession. During which Standard & Poor’s downgraded the nation’s credit for the first time. They lowered the rating from AAA to AA+. Moody’s is now the only one of the Big Three ratings agencies that hasn’t downgraded the US. He thinks the problem is that the government keeps kicking the debt down the road. The real challenge is getting a divided government to address the debt before it is too late.
The current Treasury Secretary, Janet Yellen, seemed blindsided by the downgrade. Especially as the administration is trying to run on the success of “Bidenomics.” She said, “Fitch’s decision is puzzling in light of the economic strength we see in the United States. I strongly disagree with Fitch’s decision, and I believe it is entirely unwarranted.” She pushed back by saying old data was used and credit conditions have improved under Biden. Yellen also referred to various positive economic indicators. She pointed to rising gross domestic product, low unemployment, and cooling inflation. Yellen stated these are signs of a resilient and stable US economy.4
Impact of the Downgrade
Experts say policymakers should take the downgrade seriously. Fitch identified underlying problems with the economy. And the lowered credit rating will have a negative impact on it. Interest rates on consumer credit cards, home mortgages and business loans are based, either directly or indirectly, on the rates charged on Treasury debts. When the Treasury’s borrowing costs go up, and when that increase is sustained over the long term, it has a cascading effect on consumer and business credit.
According to the Congressional Budget office, the federal government’s outstanding debt is now roughly equal to the nation’s GDP. This ratio not seen since the end of World War II. It is on track to continue rising. The runaway debt poses many threats to the economy. The largest purchasers of US Treasury debt are foreign governments. Countries like China may rethink the wisdom of investing large amounts of money in a government that seems unable and unwilling to balance its books.
“Rich Dad, Poor Dad” author Robert Kiyosaki weighed in on the downgrade. He again warned that the economy is heading for a crash landing. He tweeted, “First shoe to drop. Fitch rating services downgrades U.S. credit rating from AAA to AA+. Brace for crash landing. Sorry for the bad news yet I have been warning for over a year the Fed, Treasury, big corp CEOs have smoking fantasy weed. Take care.” Kiyosaki recommends buying gold and silver for unstable times like these.5
The downgrade is the latest sign of an economy in disarray. It will have long term negative impacts in the US and abroad. Our astronomical debt and chaotic financial policies will continue to edge the country closer to economic collapse. Unless, of course, the political will is found to tackle the problem now. Unfortunately, that will is nowhere to be found. The best a private citizen can do is protect their value of their retirement funds with safe haven assets like gold and silver. A Gold IRA from American Hartford Gold can safeguard your funds against a downgraded US economy. Contact us today at 800-462-0071 to learn more.