Commentary
The last time one of the Big Three credit rating agencies (CRAs) downgraded U.S. debt from the highest AAA ranking was in 2011. But Fitch Ratings’
demotion of the world’s lone superpower—the nation that is the home of the pre-eminent global reserve currency—from AAA to AA+ on Tuesday, while
spooking the markets, is being met with shrugs of the shoulders and even contempt.
Proclaiming that “it doesn’t really matter that much,” JPMorganChase CEO Jamie Dimon also said that for other countries to “be AAA and not America is kind of ridiculous,” considering that the United States is “still the most prosperous nation on the planet, it’s the most secure nation on the planet.” Economist Larry Summers, of the late Clinton and Obama administrations, and of Harvard,
sneered that Fitch was being “bizarre and inept.”
Fitch and its sister CRAs, Moody’s and Standard & Poor’s, have been found with egg on their faces many times; whether it be in regard to New York City’s financial implosion in the 1970s or, most infamously,
supplying the key ingredients leading to the 2008 financial crisis by vouching for the health of massive amounts of poisonous sub-prime mortgages as they were folded into complex equity instruments and touted as sound investments. Some wonder whether CRAs’ ratings are bought, or formulated without serious analysis.
Its checkered history notwithstanding, much of Fitch’s recent assessment should be taken very seriously.
Fitch lead analyst Richard Francis cites a U.S. debt-to-GDP ratio of 113 percent and rising, well above the pre-pandemic 2019 level of 100 percent, plus a growing interest rate burden. Fitch’s projection for 2025 exceeds 118 percent. The firm’s official statement
notes “the expected fiscal deterioration over the next three years, a high and growing general government debt burden,” and “repeated debt limit standoffs and last-minute resolutions.” The United States, it says, “lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process.” Plus, “there has been only limited progress in tackling medium-term challenges related to rising social security and Medicare costs due to an aging population.”
The firm projects the U.S. budget deficit to rise from its 3.7 percent of GDP 2022 level to 6.3 percent in 2023, thanks to “cyclically weaker federal revenues, new spending initiatives and a higher interest burden.” This is compounded by collective state and local government red ink totaling 0.6 percent of GDP. Beyond that, Fitch expects a deficit of 6.6 percent of GDP in 2024 and 6.9 percent in 2025.
Inevitable recession this year means a real GDP growth of only 1.2 percent this year, after 2.1 percent in 2022, and just 0.5 percent growth in 2024, according to Fitch.
As in the last time the U.S.’s credit rating was downgraded—during the Obama Administration in August 2011 when then Treasury chief Timothy Geithner
accused S&P of “terrible judgment”—the big spenders in power once again made a point of beating up the messenger. Treasury Secretary and ex-Federal Reserve Chairwoman Janet Yellen
doubted the quality of Fitch’s quantitative ratings model, and defended the U.S. under the policies set by the government as “the world’s largest and most dynamic economy, with the deepest and most liquid financial markets in the world,” and gave the dubious assurance that President Joe Biden was going to “reduce the deficit by $2.6 trillion over the next decade.”
The Congressional Budget Office may be projecting that
social security will be depleted by 2033 and
Medicare by 2035, but Democrats will wait until the last possible minute, spending trillions in the meantime, and then slam massive tax increases on the middle class in a climate of national emergency to keep the country from defaulting—blaming Republicans and taking credit for saving the country when the day of reckoning arrives.
Seeking to appear non-political, Fitch equates tax reduction as the GOP’s tweedle dum to the tweedle dee of the left-dominated Democratic Party’s trillions in new spending. The firm laments that the 2017 Trump tax cuts, set to expire in 2025, will be subject to “political pressure to make these permanent, as has been the case in the past, resulting in higher deficit projections.”
Without losing a breath and in near-comic fashion, the Fitch statement goes on to acknowledge that the United States is a “large, advanced, well-diversified and high-income economy, supported by a dynamic business environment,” which enjoys “extraordinary financing flexibility” because its dollar is the world’s go-to currency.
Why exactly does Fitch think America has such a dynamic business environment and a sound currency? What is it that makes the U.S. economy advanced and allows it to provide high incomes? Not the taxes and regulations Democrats love.
The real unfolding crisis that CRAs should be setting off sirens about is that the United States of America is hurtling to socialism, with
unsustainable entitlement spending and the radical left—likely the ones in power when it’s time to pay the piper—determined that investors and entrepreneurs, already victims of an embezzling government, will be hit hard through even
higher taxes.
Fitch and the others should salute the few-and-far-between politicians who aren’t afraid to tackle the entitlement monster like Florida Republican Sen. Rick Scott, whose own party leaders
cowered instead of cheering
him early this year, and who as thanks for exhibiting guts was
mocked by Mr. Biden.
The United States’ credit rating hasn’t been downgraded because of the GOP’s job-generating tax cuts, or because the two parties aren’t dealing with one another harmoniously enough regarding the debt ceiling—it’s been lowered because our ever-growing Big Government is out of control, charging toward destination doom unless we elect people who are brave enough to stop it.
