by Michael Maharrey, Schiff Gold:
Mainstream media pundits and politicians generally act unconcerned about the skyrocketing national debt and ever-growing budget deficits, but somebody has taken notice.
On Friday, Moody’s Investor Service lowered its outlook on US government credit from “stable” to “negative.” This could be a prelude to a downgrade in the country’s AAA credit rating. The agency typically resolves an outlook by either revising it back to stable or executing an actual downgrade within 18 to 24 months.
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Credit ratings represent an agency’s assessment of the country’s ability to make good on its debt obligations.
Moody’s cited rising interest rates and the lack of political will to address the national debt as reasons for the outlook change.
In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.”
Moody’s also expressed concern about the “ongoing political polarization within US Congress,” saying it will hinder the ability to “reach consensus on a fiscal plan to slow the decline in debt affordability.”
Moody’s is the last of the three major rating agencies to maintain a top AAA rating for the US government debt.
This move by Moody’s follows a rating downgrade from AAA to AA+ by Fitch in August.
“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said at the time, noting that the US government doesn’t have any kind of “medium-term fiscal framework,” and operates under a “complex budgeting process. In other words, Congress sets the budget on a year-by-year basis.
These factors, along with several economic shocks as well as tax cuts and new spending initiatives, have contributed to successive debt increases over the last decade.”
The Moody’s outlook downgrade occurs as the US government stands on the brink of another government shutdown. The current stopgap funding deal reached before the last deadline runs through Nov. 17.
Unsurprisingly, the Biden administration “disagrees” with the shift to a negative outlook. Deputy Treasury Secretary Wally Adeyemo claimed the US economy “remains strong” and touted the safety and liquidity of US Treasuries.
White House press secretary Karine Jean-Pierre blamed Republicans, saying the outlook change was “yet another consequence of Congressional Republican extremism and dysfunction.”
THE REAL PROBLEM #1
Political posturing aside, the real problem is the US government borrows and spends too much money, and the cost of borrowing is rising rapidly.
Adeyemo claimed that the Biden administration has demonstrated its “commitment to fiscal sustainability,” noting over $1 trillion in deficit reduction measures included in June’s debt ceiling deal. But this deficit reduction hasn’t shown up in reality. The administration consistently averaged half a trillion dollars in spending every single month of fiscal 2023.
