Fitch Downgrades the US Rating to 'AA+'

https://www.fitchratings.com/research/sovereigns/fitch-downgrades-united-states-long-term-ratings-to-aa-from-aaa-outlook-stable-01-08-2023

by david927 • 3 years ago

101 119 3 years ago

fitchratings.com

tekla• 3 years ago

Fitch really does not like the repeated debt limit drama.

intrasight2• 3 years ago

Moody's likes it even less. They downgraded to AA+ some time ago, and for the same reason.

Cruncharoo• 3 years ago

That was S&P. Moody's still rates the US 'Aaa'.

cchance• 3 years ago

It's almost like congress holding the fucking debt limit hostage every few months isn't good for the rating or the country as a whole.

onos• 3 years ago

For sure. Possibly the magnitude of our debt is an issue too.

aionaiodfgnio5• 3 years ago

We don't need to speculate.

Ratings Downgrade: The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.

gjsman-10002• 3 years ago

It doesn't take an economist to take one look at statistics like this (among others) and think, "that doesn't look promising."

https://fred.stlouisfed.org/series/A091RC1Q027SBEA

Or, well, a lot of just general statistics around the debt once you consider what they literally mean.

https://www.usdebtclock.org

infamouscow• 3 years ago

There's no incentive to do anything except wait until the last moment.

From a game theoretic perspective, waiting until the last moment is the most optimal.

Therefore, it will continue to happen until the voters find it so unpopular they begin voting out politicians that behave like this.

kykeonaut2• 3 years ago

Downgrading from a AAA rating to a AA+ rating sounds like the least advantageous from a game theory perspective as well.

I wish politicians weren't so short-sided.

euroderf• 3 years ago

Not dissimilarly, the EU has over the years been famous for absolutely last-minute agreements.

SideQuark2• 3 years ago

It is a not solely a two party game with the only outcome a win. It's connected to the economic health of the entire country and likely the rest of the world. Businesses make plans based on future expectations; when Congressional idiot posturing creates uncertainty, this requires planning for volatility, which imposes a cost on every transaction, lending rate, and plan.

The incentive is showing up here. Lose a little rating, it's harder to rotate national debt, and suddenly the ~10% of the budget used to service the debt balloons to 50% as borrowing rates increase. This would be a catastrophe.

That is the "game" being played.

The reason the public isn't outraged is because they don't understand these connections

aionaiodfgnio5• 3 years ago

The last few times this particular form of terrorism has been tried, it has achieved little. If the people threatening us had won major victories then maybe the strategy would make a sick kind of sense. Instead they won token policy concessions at best. Causing real harm to the people whose vote you need in exchange for make-believe gains is not generally a good strategy.

But there are actually people deluded enough to say Biden was responsible for the most recent hostage-taking, so hell if know what's going on. Maybe the GOP could actually blow up the US economy without consequences.

sovnade• 3 years ago

Yep - the fact that they listed this at the very top of the reasons above any kind of debt or spending numbers is pretty telling.

And they're not wrong

nostromo4• 3 years ago

Except it's not.

Ratings Downgrade: The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.

gumby2• 3 years ago

Let's be real: it's only part of congress.

revscat• 3 years ago

On HN holding one party more culpable than another tends to garner downvotes and flags.

version_five• 3 years ago

Am I reading the insinuations properly, that people are blaming Republicans for the rating change because they dare to question printing unlimited money, and belive if Republicans were more "responsible" and just allowed money to be printed unchecked there would be no problem?

I see no evidence that either party wants to restrain spending when in power, but pretending this is a partisan issue and that one party is at fault for questioning spending as apparently some are doing is reality distortion to a new extreme.

WWLink3• 3 years ago

About 1/3 of the comments in here are excitedly arguing exactly the opposite - that the brave souls holding the debt limit hostage every year are saving the country.

Which of course is bull shit. But here we are.

nostromo4• 3 years ago

People will complain about the debt ceiling -- granted, it's kinda dumb -- but it's also the only speed bump left to unlimited money printing.

The core issue is the size of the debt. The US is constantly paying off old debt with new debt. Except this year the cost of those funds quadrupled -- which means, even more debt.

If interest rates stay high for several years, our national debt will balloon out of control. At a point we'll have no money left for anything but interest on the debt, or we'll just print so much money to pay interest on our national debt inflation will come back with a vengeance.

At some point I'd love to see a grand bargain where we 1) raise taxes a bit and 2) lower spending a bit. I'm not holding my breath...

simple-thoughts3• 3 years ago

Even the size of the debt would be ok as long as gdp is growing faster than the debt. It’s not, which means the deficit spending is being used on things that are not growing gdp faster than interest rates on that debt.

Like any business, government debt is fine as long as it’s used to fund expenses that have an roi greater than the debt servicing costs. Otherwise there will be a default (tho for government inflation is also an option)

morepork2• 3 years ago

Looks to me like GDP is growing faster than the debt, at least over the past 2-3 years: https://fred.stlouisfed.org/series/GFDEGDQ188S

mr_toad2• 3 years ago

government debt is fine as long as it’s used to fund expenses that have an roi greater than the debt servicing costs

Most federal spending is on things that will have no monetary return. A very large proportion is on age-related spending (healthcare and social security).

Running up debt to pay for education makes a certain amount of sense. Running up debt to pay for the lifestyles of those who will never have to service that debt seems unjust.

tyre• 3 years ago

It is not like paying credit card bills with a credit card. The US government' debt is not like personal debt. We need to, collectively, stop talking about it that way.

thrawa83873364• 3 years ago

What is it like then?

boringg• 3 years ago

It is and it isn't. You can't continue to fund the country on high levels of debt or continue to grow the economy and eventually pay off the debt by continuing to leverage the country. It's more like we aren't certain of the limits of debt/deficit for the US economy before we get back knock on effects whereas in personal finance your creditors will come calling much faster. There are other nuances of course but on a large macro scale it is similar.

HideousKojima• 3 years ago

The only real difference is that the government has the option to print its way out of debt. Which simply has different devastating economic effects than defaulting, but the effects are still there.

mrleinad• 3 years ago

Welcome to Argentina

aionaiodfgnio5• 3 years ago

We know how to reduce the deficit: raise taxes on the rich. It's not rocket appliances. It's just a complete non-starter given the current GOP. The people screaming the loudest about the deficit are the same people preventing any real steps to fix it.

ativzzz2• 3 years ago

You and I both know that if we raise more money, we will spend more money. There is no situation when the U.S. makes more money without immediately increasing spending

dralley2• 3 years ago

Congress passes the budget. If they want to reduce spending, they should pay the political price of having to attach their own names to those cuts. As it stands, it is simply used as blackmail for extracting concessions without actually decreasing spending.

snowwrestler• 3 years ago

The debt ceiling is raised via legislation that members of Congress vote on. They “attach their names” the same way as any other bill.

Terr_• 3 years ago

Precisely. Congress is simultaneously demanding that the executive branch collect X taxes, and spend Y on programs, while also demanding the executive branch do it while somehow putting a total halt on paying outstanding debts it made because since X<<Y.

They collectively want to save their cake for later and eat it now, and somehow it's always someone else's fault that there's just one cake.

Anyway, this leaves the executive branch with nothing by bad options. Here are the ones I can think of, from least-bad to worst:

1. Ignore the debt-ceiling because it is weird self-contradictory nonsense compared to business as usual, fight it in federal court system as Congress Being Impossibly Stupid. (I prefer this one.)

2. Proactively ignore some spending laws while enforcing others of the President's choice. (Unconstitutional, President can't line-item-veto.)

3. Specifically ignore laws around Federal Reserve and its nominal independence, so that the President can arbitrarily print more money for everything. (Similarly unconstitutional as #2, will severely spook markets and leads to a slippery-slope of inflation since it's no permanent fix.)

4. Raise new taxes of its own choosing. (Explicitly unconstitutional, only Congress can do that.)

5. Cease to honor its debts. (Explicitly unconstitutional, also major financial/economic/diplomatic crisis.)

Natsu• 3 years ago

The problem with printing it is that we'll always be able to just print more, because it's effectively a number in a database and we probably don't even need to literally print out dollar bills for it.

But we'll have piles of currency and we'll be lacking in actual things to buy with that. It acts as a regressive, stealthy tax so it's always politically favorable even if it's bad for us economically.

And it has downstream effects because of the demand for inflation-proof goods that are easy to get cash for (gold, silver, property you can rent out), which has other effects like making housing an investment and it being hard for people who actually want to live in those, etc.

Then you game the inflation metrics to make things look good and people wonder why numbers keep going up and they can't make any progress on actually improving their lives because they have no idea what they're really being taxed.

They'll keep getting away with it as long as people see numbers going up and never realizing the source of the problems.

agar• 3 years ago

it's also the only speed bump left to unlimited money printing.

I have never once heard during the budget negotiation process, "we cannot increase this budget because it will put us over the debt limit."

The debt limit restricts the US from paying for things it has already purchased. It in no way stops the US from purchasing them, or budgeting for them, in the first place.

Using the debt limit as a means of controlling future budget negotiations (in other words, "adopt my budget priorities or I will tank the economy") is exactly why Fitch downgraded US debt, thereby increasing the cost of debt service and exacerbating the problem you're concerned about.

nostromo4• 3 years ago

Except in practice it certainly does.

In 2023 the negotiations on the debt limit cut $1.5T in projected debt over the next 10 years. Both parties were unhappy but agreed to the cuts.

Btw, $1.5T is not nearly enough. In 2033 we'll "only" be $46.7T in debt instead of $45.2T, which is basically not enough to move the needle.

https://www.cbo.gov/publication/59260

cykotic• 3 years ago

It seems like you may not understand how budgets at the federal level work in the U.S. Congress passes spending bills and the President signs (or vetos) them. This has nothing to do with the debt limit as such. Eliminating the need to vote on a debt limit will not in any way lead to a situation in which runaway spending can occur that is not already present in the current system.

The grand bargain you speak of has already occurred. It occurs when Congress passes a budget that is signed by the President.

alex_young2• 3 years ago

Why worry about the national debt? It's largely owed to some part of the US government, or to the Fed itself. Foreign ownership is 7.3T, with Japan the largest at just over 1T.

https://www.pgpf.org/blog/2023/05/the-federal-government-has...

nostromo4• 3 years ago

Because inflation.

Reminder: inflation hurts the poor the worst, as their wages tend to lag behind price increases.

chollida1• 3 years ago

People will complain about the debt ceiling -- granted, it's kinda dumb -- but it's also the only speed bump left to unlimited money printing.

This is wrong. This is a misunderstanding of what the debt ceiling is.

Congress has the power of the purse and can pass what ever budget they want.

They can say tomorrow that they will spend $1,000,000,000,000 a year on what every they want and the debt ceiling can't do anything about it.

The Debt ceiling is only about existing spending. Which has already been authorized. And ironically, almost always by the party no longer in power who is trying to block the debt ceiling from being raised to pay for the spending they authorized when they were in power.

It does nothing to stop congress from authorizing new spending after the fact.

Congress can chose to lower spending when they are in office. The fact that neither party has done that in over 30 years indicates that neither party cares about the national debt until the other party is in power.

throw0101a3• 3 years ago

The US is constantly paying off old debt with new debt. Except this year the cost of those funds quadrupled -- which means, even more debt.

And? Why is this a problem?

Given the UK has never (AFAICT) had a surplus, that means they've simply continue to roll over debt, dating back to the South Sea Bubble (1700s), Napoleonic Wars (early 1800s), Crimean War (late 1800s), and WW1 (1900s):

* https://www.theguardian.com/business/blog/2014/oct/31/paying...

The UK has been doing it for four hundred years: they have in several instances been over 150% debt-to-GDP, and twice went over 200%:

* https://en.wikipedia.org/wiki/United_Kingdom_national_debt#H...

(Their current woes are of dumb decisions unrelated to fiscal issues, though the decisions are not helping the economy.)

If interest rates stay high for several years […]

You mean like they did in the 1980s?

* https://www.macrotrends.net/2016/10-year-treasury-bond-rate-...

* https://fred.stlouisfed.org/series/FEDFUNDS

* https://ritholtz.com/2016/10/long-history-long-10-year-us-tr...

Over the long-term (centuries), the general trend of interest rates is downward (with sporadic spikes, which often correspond to wars):

* https://www.visualcapitalist.com/700-year-decline-of-interes...

* https://www.bankofengland.co.uk/working-paper/2020/eight-cen...

For most of the 2010s people were complaining about inflation being too low (along with interest rates).

dpweb• 3 years ago

I don’t see congress doing the responsible thing and dealing with the debt. Not to mention, there isn’t as much that can be cut from discretionary spending as you would think. Any meaningful cuts decimate everything outside of defense.

We’re not (in my option) going back to zero interest rates, so interest will make balanced budgets impossible to achieve.

Also don’t see much appetite to cut defense as we’re aligning to have China and Russia as enemies.

Rather I think we’ll resort to more of the Fed buying up the debt who can remit the interest payments back to the treasury.

I could see a scenario where they even just retire/redeem treasuries so the debt just goes away. The downside it’s inflationary but also does this erode confidence in the system where things are (even more so) centrally controlled.

smitty1e2• 3 years ago

How could anyone do the 'responsible thing'? Voters do not reward anyone telling them 'no'.

smitty1e2• 3 years ago

There is as yet no feedback loop on the U.S. Congress to provide any braking. It runs open loop.

The only thing in view that has the slightest hope of stabilizing matters is an Article V convention, as far as I can tell.

https://conventionofstates.com/

CSMastermind• 3 years ago

Fitch’s credit ratings do not directly address any risk other than credit risk.
ESG: ... These scores reflect the high weight that ESG has in Fitch's proprietary Sovereign Rating Model. ... https://www.fitchratings.com/topics/esg

frostburg• 3 years ago

It's somewhat hard to service debt underwater.

groby_b• 3 years ago

I'm sure you're trying to say something, but until you spell it out, we're left to guess.

If what you'd like to say is that you think credit risk and ESG aren't related, well, Fitch disagrees.

And rightfully so. Lack of ethics impact credit risk, because it means more graft. Lack of governance impacts credit risk, because it's harder to know where money even went, or to ensure it's well spent. Lack of sustainability means the concern won't exist at some point, which, well, pretty large risk if your credit happens to be long running.

FloatArtifact• 3 years ago

Isn't even possible for the US to pay off their national debt completely?

aionaiodfgnio5• 3 years ago

Sure. The U.S. could run a surplus like it did under Clinton. Surplus & time -> debt paid off.

But the only way we know to get back to those days involves raising taxes on the rich. The people ranting and raving about the debt would never agree to raising taxes, so the deficit hawks will continue blowing up the deficit until things fall apart completely.

Me10002• 3 years ago

Sure, but it's not desirable. Among other reasons, federal debt is considered the safest kind of bond an investor can buy. It's nearly the same as parking your money in an FDIC insured savings account, except there's no limit to how much of it you can own. In recent memory corporations, banks, and some investors have made requests that the federal government issue more bonds because the demand is so high.

mensetmanusman• 3 years ago

The Covid spending spree has consequences. I wonder in an alternative universe of mass unemployment due to business collapse whether we would still have a AA+ rating but through a different path.

Rapzid• 3 years ago

My knee jerk reaction is.. Does this mean anything?

xyst• 3 years ago

How reliable are these ratings? In the aftermath of the subprime mortgage crisis we learned their algorithms can be easily beaten (repackaging dog shit securities) or just outright fraudulent.

janalsncm4• 3 years ago

The ‘07 crisis demonstrated that rating agencies tend to overrate securities, not that the agencies are useless. High bias, normal variance.

bluefishinit5• 3 years ago

I think it's time to revisit MMT: https://en.wikipedia.org/wiki/Modern_monetary_theory

MMT paired with UBI. You can essentially wipe out all debt by printing as much money as you need, but compensating for inflation by covering everyone's basic living costs. It seems like one of the only plausible ways forward into post-capitalism.

Me10002• 3 years ago

What is this "post-capitalism" you speak of?

WhereIsTheTruth• 3 years ago

"the sharing economy" perhaps?

open source lead the way

bluefishinit5• 3 years ago

Basic needs met for all people regardless of employment status. Eventual post-scarcity, ideally post-inequality.

TimTheTinker3• 3 years ago

There would be serious, worldwide repercussions involved in tanking the USD.

And by flooding the economy with cash, UBI would make the problem worse, not better. Surrounding economic variables (prices, supply, cost of labor, exchange rates, etc.) would ensure that the UBI wouldn't be enough to support people. A planned economy is not the solution either - see every time that's been tried in history.

The only solution is a long-term, consistent commitment to conservative fiscal policy -- reducing unnecessary government spending, reducing the debt, balancing the budget and working within it, etc. Anything less is inviting economic trouble.

bluefishinit5• 3 years ago

A planned economy is not the solution either - see every time that's been tried in history.

In case you haven't noticed our current economy also does not work. We are going to have to move to a new system sooner or later. Technology and productivity have reached a point (or are near the point) of being able to provide the basic living essentials to all citizens. The longer we delay accepting that, the more pain we'll all be in for.

dalmo3• 3 years ago

If crypto taught us anything was that the value of "free money" quickly goes to zero.

nine_k• 3 years ago

I think that downgrading the US rating is more funny than practical.

I can't help but quote this again: «The U.S. has a comparative advantage as a safe financial haven. We have the world’s strongest military and a stable government. Thus, we have a comparative advantage in producing debt, primarily government debt. That is not necessarily a good comparative advantage to have.» (Arnold Kling)

If there was time to downgrade US debt it would likely be the time when the US rapidly moved and even outsourced its production to China, shutting down local factories. That was the time when the risk for the US might was increasing, should the US-China relations sour (as they have). But of course downgrading wasn't happening then; I suspect it was the other way around.

wittenbunk• 3 years ago

stable government

The previous administration attempted a coup to retain power....

pas• 3 years ago

in less stable countries they even could have succeeded.

also said guy was just charged. so, maybe there's some hope for that stability.

janalsncm4• 3 years ago

In practical terms it may mean it costs the government more to buy dollars.

janalsncm4• 3 years ago

To me the fact that the US gets to dance around defaulting while still holding a AAA rating shocks the conscience. It’s not sustainable. One of these days there’s going to be an oopsie we just defaulted followed by 1000 articles about why it’s not that bad and we should’ve defaulted a long time ago and it won’t happen again. But the bottom line is if the US government were a person, I’d be a little hesitant to lend him money I needed back.

Points about the military and the strong, diverse economy mean nothing to me. They’re true and the US still barely pays it’s creditors.

hkkwritesgmail• 3 years ago

Considering the rating agencies put Enron on AAA ...

Fitch Downgrades the US Rating to 'AA+'

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