‘Trump Downgrade’: Blame Game Surges as Biden Officials Fault Trump for Fitch Downgrade

Former President Donald Trump speaks at the Republican Party of Iowa's 2023 Lincoln Dinner in Des Moines, Iowa, on July 28, 2023. SERGIO FLORES/AFP via Getty Images

The Biden administration and Democrats are on the defensive after Fitch Ratings cut the U.S. long-term foreign-currency issuer default rating to AA+ from AAA—the first time a major rating company has downgraded the nation’s debt rating since 2011.

Despite Fitch’s concerns over “the fiscal deterioration over the next three years,” the White House is blaming former President Donald Trump and House Republicans for the Aug. 1 downgrade.

This was a “Trump downgrade” and “a direct result of an extreme MAGA Republican agenda” that is “defined by chaos, callousness, and recklessness,” Kevin Munoz, President Joe Biden’s reelection campaign spokesperson, said in a statement on Aug. 2.

“Donald Trump oversaw the loss of millions of American jobs, and ballooned the deficit with the disastrous tax cuts for the wealthy and big corporations,” Mr. Munoz said.

Jared Bernstein, chair of Biden’s Council of Economic Advisers, alluded to the “cognitive dissonance” he endured when learning about the “bizarre” downgrade that “made no sense” because of the success of “Bidenomics.”

“The timing was very strange” since the “creditworthiness deteriorated significantly under President Trump for good reasons, and under President Biden, it started to track back up,” Mr. Bernstein noted.

Council of Economic Advisers member Jared Bernstein speaks at a press briefing at the White House on July 18, 2022. Andrew Harnik/AP Photo

Senate Majority Leader Chuck Schumer (D-N.Y.) pinned the blame on House Republicans, posting on social media that their “reckless brinkmanship and flirting with default has negative consequences for the country.”

Heading into the COVID-19 pandemic, the former president presided over about 7 million new jobs, according to historical figures from the Bureau of Labor Statistics (BLS). The budget deficit did swell during the Trump administration, even before the COVID-19 public health crisis, growing to $983.5 billion.

By comparison, Mr. Biden has overseen about 3 million new jobs, even as his administration keeps touting 13 million new positions by counting the jobs that returned after pandemic lockdowns ended. In addition, the current federal deficit is already larger than before the pandemic, as it topped $1.39 trillion in the first nine months of the current fiscal year.

The Jan. 6, 2021, Capitol breach also played a role in the downgrade, says Richard Francis, a senior director at Fitch Ratings.

“It was something that we highlighted because it just is a reflection of the deterioration in governance, it’s one of many,” he told Reuters on Aug. 2. “You have the debt ceiling, you have Jan. 6. Clearly, if you look at polarization with both parties ... the Democrats have gone further left and Republicans further right, so the middle is kind of falling apart basically.”

Meanwhile, other White House officials and well-known Democrats denounced Fitch’s decision.

Treasury Secretary Janet Yellen described the change as “arbitrary and based on outdated data.” White House press secretary Karine Jean-Pierre stated the credit rating haircut “defies reality.”

Former Treasury Secretary Larry Summers called the move “bizarre and inept.”

“The United States faces serious long-run fiscal challenges. But the decision of a credit rating agency today, as the economy looks stronger than expected, to downgrade the United States is bizarre and inept,” he posted on the X platform, formerly known as Twitter. “If anything, the data in the last couple of months has been that the economy is stronger than what people thought, which is good for the creditworthiness of US debt.”

Jason Furman, chair of the Council of Economic Advisers in the Obama administration, asserted that it was “extremely absurd.”

“And is more likely to show that Fitch is irrelevant to the views of investors in U.S. sovereign debt than it is to show investors anything about the United States,” he posted.

Republicans Fight Back

A chorus of Republicans pushed back against some of the assertions.

Rep. Lauren Boebert (R-Col.) urged the president to “stop your inflation policies and spending money we don’t have.”

“Fitch downgraded our AAA rating for the first time since 1994 and the fake news isn’t talking about it because of the third sham Trump indictment,” she posted on X. “Fitch cited rising government deficits, significant increases to our general debt, rising interest rates, and they even projected a 4th quarter recession.”

Rep. Bob Good (R-Va.) said that all Democrats and Republicans who voted earlier this year to raise the debt ceiling “own this credit rating downgrade.”

Sen. Tim Scott (R-S.C.) accused the Biden administration of “making excuses.”

“Once again, the Biden Administration wants America to believe what they say, not what Americans see,” the 2024 presidential candidate posted on X. “Instead of an apology, they offer nothing but excuses for crippling Bidenflation that now taints America’s standing on a global stage.”

Florida Gov. Ron DeSantis argued that the change to AA+  from AAA was “a result of frivolous spending and ballooning national debt for programs like the CARES and ‘Inflation Reduction’ Acts.”

Republican presidential candidate and Florida Gov. Ron DeSantis (R-Fla.) speaks at the Faith and Freedom Coalition's Road to Majority conference in Washington on June 23, 2023. Madalina Vasiliu/The Epoch Times

Although he had concerns about “Fitch’s history of subjective ratings,” Rep. Blaine Luetkemeyer (R-Mo.) noted that “reckless” spending has resulted in inflation and diminished confidence in the U.S. dollar and Treasury securities.

“Reckless fiscal policy that caused the inflation we’re still suffering is also harming confidence in our currency and treasuries,” Mr. Luetkemeyer posted. “House Republicans understood this truth, which is the reason Speaker [Kevin McCarthy] made countless attempts to start a dialogue with the White House months before the debt limit was reached.”

“We can’t keep spending money we don’t have,” agreed Rep. Tim Burchett (R-Tenn.).

The Debate Begins

In the fallout of Fitch’s announcement, there has been no shortage of opinions on the news, with some of the top names in economics discussing the downgrade.

Mohamed El-Erian, chief economic adviser to financial services company Allianz SE, took to X to express his viewpoint on this “strange move.”

“I am very puzzled by many aspects of this announcement, as well as by the timing,” Mr. El-Erian wrote. “Overall, this announcement is much more likely to be dismissed than have a lasting disruptive impact on the U.S. economy and markets.”

While he thought the credit drop was “ridiculous,” JPMorgan Chase CEO Jamie Dimon informed CNBC that he doesn’t think it matters too much, since the financial markets rather than the rating companies determine borrowing costs.

But investors will generally use credit ratings to examine the risk profile of businesses and governments when they participate in capital markets. Typically, the lower a borrower’s rating, the higher its financing costs. At the same time, the belief is that U.S. Treasurys are the most liquid assets in the world, so investors will not focus too much on Fitch, Moody’s, or S&P reports.

Peter Schiff, chief economist at Euro Pacific Asset Management, also thinks the downgrading is “meaningless” but for a different reason.

“#Fitch downgrading U.S. Treasuries to AA+ from AAA is meaningless, as Treasuries are junk bonds,” Mr. Schiff posted. “When it comes to rating sovereign credit, the primary risk is currency depreciation, not default. Given the trajectory of U.S. Govt. deficit spending, a dollar collapse is inevitable.”

In the end, David Beers, the former head of S&P Global Ratings’ sovereign debt scoring committee who cut the U.S. credit grade more than a decade ago, took a victory lap.

“It’s fair to say that the rating agencies, based on their own criteria, have been pretty timid in their actions,” Mr. Beers said in an interview with Bloomberg TV. “If anything, Fitch’s action is simply confirming what S&P decided back in 2011, and here we are in 2023.”