After market close today Moody’s downgraded the credit rating to Aa1 from Aaa.
The 10 year treasury rose a few basis points on the news. We’ll see what kind of action this brings to interest rates next week. The other big credit ratings firms had already lowered the rating some time ago so in theory it shouldn’t matter–BUT one never knows.
With all the recent discussion here about downgrades from rating agencies, I decided to re-watch the 2015 classic The Big Short
for a reminder of exactly how incestuous the relationship between Wall St. and the big rating agencies really is. Overall I’d say Treasury Sec. Bessent is correct when he says the Moody’s downgrade is not that meaningful…ymmv
Apollo/Slok:
Declining Foreign Participation in US Treasury 30-Year Auctions
https://www.apolloacademy.com/declining-foreign-participation-in-us-treasury-30-year-auctions/
Kinda saw that one coming. China has basically walked away from Treasury auctions and have sold so much of their treasury holdings that they are now the third largest holder of Treasuries, (after Japan and the UK) a position they have not been in since the 1990’s…
Mark Zandi is on record praising the Inflation Reduction Act. He said it was an investment that would pay for itself. he was NOT shouting warnings about a Moodys downgrade if we dont shape up. In fact he had NO negative comments whatsoever about the 9 Trillion stimulus. Nor about QE. NOW he chimes in. He’s merely a cheerleader. Guess who’s side he’s on??
What he has done is reduce himself to a gaslighting liar.
If You Prefer –
“In fact he had NO negative comments whatsoever about the 9 Trillion stimulus. Nor about QE. NOW he chimes in. He’s merely a cheerleader. Guess who’s side he’s on??
What he has done is reduce himself to a gaslighting liar.”
So you are insinuating that the downgrade from Moody’s is politically motivated due to Zandi’s liberal bias? Both S&P and Fitch downgraded the credit ratings of the US back in 2011 and 2023. We now have $37T in debt – nearly 1.25X GDP.
We take in $5T in government revenue every year and continue to spend $7T. Annual interest costs on the debt have gone from $263B in 2017 to $1.1T in 2025 (and beyond). $4T of our $5T in revenues goes to mandatory spending for Medicare, Medicaid, SS, and now interest costs.
Neither political party truly wants to tackle the problem and take the pain. The Blue team gives out freebies for clean energy, electric cars, etc. while the Red Team gives out freebies via more tax cuts (lower corporate taxes, no taxes on tips or overtime for individuals, etc.)
Anyone who has an ounce of economic and financial sense knows that the downgrade is clearly justified. The way I’m playing it is long gold and even long a tiny bit of bitcoin.
Our kids and grandchildren are eventually going to have to pay for this – and it won’t be pretty.
Both S&P and Fitch if you read their original reports. The reason for the downgrade was due to recent laws enacted which created problems predicting future economic outcomes within the country.
1) Laws:
debt ceiling – Original idea was to impose fiscal discipline. Both regulators mentioned in their report that in reality it is used for high stakes gambling or showmanship contests. Unneeded drama. Should be immediately repealed.
Potter—-“We need a voter climate in which fiscal cutting is reinforced by voters and the public. Sacrifice needs to be the new cool.”
I agree, but this ain’t happening in our lifetimes. Eventually the difference in living standards, between the vast majority of people no longer making ends meet and the rich, will result in a revolution (violent or non-violent). When that happens, the U.S. will become much more socialist (like Europe) and the dollar will be devalued by design or by market forces. The super rich will be dealt super high progressive tax rates. I’m talking 70-80-90 % marginal rates. We will be begging foreign workers to come to the U.S., not hunting them down and deporting them.
This is not rocket science. Just the next stage for countries with an aging population where the young workforce is not abundant enough to pay for the retirements of the older population.
What’s that ticking noise that keeps getting louder??
US National Debt = $36,861,338,987,293…..which equates to
$323,050 per taxpayer or $107,663 per citizen.
Keep kicking the can down the road, eventually it’ll go into the gutter.
NEWBIE; This is what happens over the decades when you have 535 politicians attaching their own pork barrel money to these bills while they line their own pockets with riches. I have a close personal friend who is worth well over $100 Million and he told me “nothing will change in DC until it becomes a real emergency” then & only then will they act. Too many of those folks have no clue about economics.
“Too many of those folks have no clue about economics.” — and that includes the top of the stack!
I was trying hard to not get political but I see you broke Tims rule.
Who’s the last president we had who **did** understand the nature of the problem and worked hard to resolve it? Both of these parties are guilty of incinerating the children and grandchildren’s future earnings to feed the self-serving, self-destructive spend. We – lol – hire lawyers to manage the largest financial enterprise in the history of humanity.
> Who’s the last president we had who **did** understand the nature of the problem and worked hard to resolve it?
Bill Clinton raised taxes and left with a surplus.
Bill Clinton inherited the greatest financial bubble in human history and left office a few months before the implosion. Even post implosion, the problem was nothing compared to scale of lunacy we’ve seen from 2007 til today.
https://fred.stlouisfed.org/series/GFDEGDQ188S
Both of these parties are robbing the children and grandchildren. They share the shambles.
Clinton’s economy struggled early in his term that’s when bond vigilantes first appeared in response. Improved over the years as he learned on the job. Better economy in his second term partially due to Alan Greenspan blowing the first huge bubble. Probably to cover up the failure of LTCM, an underrated disaster that may have started a cascade of events still happening today.
HA! – you didn’t want to get political but clearly stated addressed politics in your original post, “This is what happens over the decades when you have 535 politicians attaching their own pork barrel money to these bills while they line their own pockets with riches.”
You can say what ya want, but clearly you already walked us into that political land mine. Have a great one.
That isn’t possible with an independent federal reserve bank.
You would need to fire Powell and install someone else.
This isn’t like Zimbabwe where physical currency is primary over government debt.
They would need to do it by selling debt, and unless you have a captive buyer like Japan does with its Postal Savings, the buyers would dry up as the supply far exceeded demand.
The better way to do it is through either issuing 100-year bonds and possibly doing a voluntary debt exchange of 75%.
The long term (maybe short-term too) impact will probably be the same as when Fitch did this in 2023 and S&P did this in 2011; that is nada. Also must wonder if timing in anyway political. Just my two cents.
The problem is the politicians and the political process? We have this backwards. We elect the politicians. We expect $1.25 back from the government for every dollar we send them. We are the problem. We live and work in a country without a real budget yet we tolerate that. The current reconciliation negotiations are typical of the fiscal morass.
We need a voter climate in which fiscal cutting is reinforced by voters and the public. Sacrifice needs to be the new cool.
“Exploiting the stupidity of the American voter is fun and easy” (Johnathan Gruber – architect of obamacare)
“We have to pass the bill to see what’s in it” (Nancy Pelosi)
JEDRZEJCZYK; According to “FACTS USA.ORG” in 2023 the top 10% of income earners already paid 76% of all federal & state taxes paid, but Bernie Sanders many many times has said “You’ve got to pay your fair share”. I think the top earners in this country are actually paying more than their fair share. The “real problem” is their obscene spending.
Just to put some context around Chuck’s comment.
That 76% is somewhat misleading, because it does not include payroll taxes and is much higher currently than it has been historically because of the fall in corporate tax collections, leading to personal income tax collections being a higher percentage of the the total tax.
If payroll taxes were included, It falls to 60%. (And in the US, about 20% of people don’t pay any income tax at all (which is increasing with boomers retiring)
Here is a link to an article describing it in more context.
https://www.cato.org/blog/tax-basics-5-charts
JUSTIN; I’m probably one of the few that actually clicked on your link and read the “entire article”. If you read the entire thing it goes onto say this—” The top 10% earned 52.6% of the income but PAID 75.8% of the INCOME TAX.” It went on to say “High Income taxpayers pay a disproportionate share of FEDERAL INCOME TAX. Thats why when Bernie cackles about paying you’re fair share I hit the mute button.
You missed this line.
Payroll taxes are partially assessed on wages. i.e. income, but are not counted as an income tax. Obviously, 76+36>100, so the pie breaks down differently.
But to not include a tax on wages as an income tax is not giving the full picture.
“However, for all but the top 10 percent of income earners, individual Americans pay more payroll tax on average than income tax each year. Payroll taxes account for 36 percent of federal revenue.”
Well either interpretation 60% is more than enough imho
Supply side economics has entered the chat…
I think that as soon as the Fed actually tries real fiscal responsibility we will have a pretty bad recession. If they actually keep doing fiscal responsibility we will have a growth period we have not had in decades. Short term pain for a long term gain. The longer they delay it the more the pain. Sad we do not have enough responsible politicians to fix this mess. Compared to China we are a socialist country. We make them look like rank amateurs at it. Maybe not European standards but getting closer every day. Either tax the crap out of us and admit we are socialist or cut spending while keeping taxes slightly high to kill off the debt. Just make up their minds already.
fc-
The Fed sets monetary policy. I’m confused by your comment.
I use the term Fed for the Federal govt. Based on what I was writing I thought it was quite obvious. Fiscal responsibility, politicians, taxes, etc.. Brevity, convenience, laziness, etc.. is why I shorten it. Context matters. Not the Federal Reserve. Yes yes.. people like calling the fed reserve the fed but I figure most people here can figure out what I meant. Fed has many different meanings. Dont make me call the feds on you. That does not mean I am going to send some ex-bankers and economic majors after you.
fc,
My ex-banker neighbor has 12 guns strategically hidden throughout his home, as well as 24 security cameras…in a guard-gated hood. The only thing he regularly captures on camera at 3 am are bobcats .
You don’t want him coming after you.
> I use the term Fed for the Federal govt
All you need is a slight change in the way you capitalize to make yourself clearer.
“Fed” = Federal Reserve
“fed” or preferably “feds” = federal government
I spoke with an earnest young broker yesterday – rare to talk to a real person these days. A specialist in bonds. He started describing their offerings. Got to one issue and he said “and it’s backed by the full faith and credit of The United States Government.” At which point I spontaneously and impolitely laughed.
Had to quickly explain, “Fella, these days, when four senior citizens meet for Sunday breakfast at the Pancake House, the first question that comes up is, ‘Do you think they’ll pay Social this month?'”
Moody’s is not telling anyone what they didn’t already know and have known for years. So I don’t expect any impact from this. IMHO, Moody’s is missing the bigger point. It’s not whether there’s too much debt. It’s whether the US will pay its obligations in full in a timely fashion. That’s a trust issue, not a balance sheet issue. Long: gold. JMO. DYODD.
BearNJ-
The gov’t will always pay because it can print to pay. The question is what will those dollars buy.