BREAKING NEWS: FITCH DOWNGRADES U.S. CREDIT RATING FROM AAA TO AA+
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said.
FROM CNBC: Fitch Ratings downgraded the United States’ long-term foreign currency issuer default rating to AA+ from AAA on Tuesday, pointing to “expected fiscal deterioration over the next three years,” as well as a growing general debt burden.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” said Fitch, one of the three big rating agencies.
U.S. stock futures opened lower after Fitch issued its downgrade, with Dow futures sliding about 100 points.
Back in May, the agency placed the nation’s AAA rating on negative watch, blaming the debt ceiling fight. At the time, lawmakers in Washington butted heads over an agreement that would keep the federal government from running out of money. President Joe Biden signed the debt ceiling bill on June 2, just days away from the “X-date” on June 5.
The country’s recent debt limit feud was mentioned again in Tuesday’s downgrade.
“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” the ratings agency said.
Fitch also highlighted the rising general government deficit, which it anticipates will rise to 6.3% of gross domestic product in 2023, from 3.7% in 2022. “Cuts to non-defense discretionary spending (15% of total federal spending) as agreed in the Fiscal Responsibility Act offer only a modest improvement to the medium-term fiscal outlook,” Fitch said.
The agency also noted that a combination of tightening credit conditions, weakening business investment and a slowdown in consumption could lead the economy into a “mild” recession in the fourth quarter of 2023 and first quarter of next year.
This isn’t the first time a rating agency has downgraded the U.S. Standard & Poor’s cut the U.S.’s credit rating to AA+ from AAA in 2011 after Washington managed to avoid a default. At the time, the agency highlighted political risk as part of its reasoning.
___________________________________________________________________________
For the longest time this newsletter has pointed out the risk of the out of control debt being taken on by the United States Government. The debt level is now nearing $32TN and is increasing at an extraordinarily rapid pace. Until this point, anyone who has pointed out the severity of endless debt issuance has been told that the “debt does not matter” since we are the world reserve currency. It seems as though, rating agencies are beginning to take notice of the debt crisis the United States is now embroiled in. The question is, how will this affect US markets, including the debt and equities markets? How will this effect the value of the United States Dollar? What will happen to gold and commodity prices? In this current mania topsy-turvy world, markets seem to defy any sort of economic reality. However, I will note that the last time the credit rating was downgraded, the S&P dropped -15% in a few weeks. Buckle up.
At this point it seems that there is no plan to even attempt to end the runaway debt policy the United States is embarking on. There was not even a small attempt to curb the debt during the fake “debt-ceiling fight” back in May. Will this cause any significant change to long-standing US policy of endless inflationary money printing? Time will tell. However, this will hopefully serve as a significant wake up call for US policy makers.
Source: https://www.cnbc.com/2023/08/01/fitch-downgrades-us-long-term-ratings-to-aa-from-aaa.html
__________________________________________________________________________
Disclaimer: This article contains information on financial topics. However, the information provided is of a general nature and cannot substitute for professional financial advice. Because financial advice depends on specific circumstances and markets constantly change, nothing in this article should be used as a substitute for competent financial advice.
Although I occasionally offer free newsletters like this one, most of the market analysis, macro-economic forecasting and land investment strategies are provided to paid subscribers only. For access to a paid membership at 35% off, click here to subscribe. Paid members are given access to my entire archive of past articles including the “hierarchy of financial needs”, “land investment strategies” and my framework for protecting your assets.