A Little Commentary – Fitch Downgrades US Debt, Prompting Concerns and Calls for Fiscal Responsibility
It just keeps coming…
Rating agency Fitch downgraded US sovereign debt considered the gold standard, from AAA to AA+. US Treasury Secretary Janet Yellen states she “strongly disagrees” and calls the move both “flawed” and “based on “outdated data.” Yellen also made excuses during the banking collapses that mired Q1 and Q2 2023.
Fitch attributes the downgrade to ever-increasing debt, serious fiscal challenges, and what it stated are a “steady deterioration in standards of governance” in the United States. “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management. The nation’s complexing budgeting process and lack of medium-term financial planning,” is of concern.
It is interesting to note the cut in the credit rating occurred after the US Treasury Department announced that it plans to increase borrowing once again to a higher figure than expected, to over $1 trillion. To note, Moody’s has kept US debt at “Aaa”, and S&P has it at AA+ since cutting it on August 5, 2011 under Obama. Strategists across the board believe that until the US government gets its “fiscal house in order” that we will see additional downgrades. The informed knew this was coming.
If you are wondering, as of June 2023, the US debt was around $32.33 trillion, two trillion more than a year earlier, with plans to now grow that another $1 trillion. The debt ceiling is a cap to government borrowing, not spending.
Without some control and discipline, faith will continue to erode impacting the long-term investment scenario even if the market and economy have overall fared better than expected so far in 2023. I continue to encourage you to read the in-depth article I wrote and shared in May which delves deeply into this topic, please click here.
For months prior to the final approval of the debt ceiling increase on June 3rd, I spoke openly as a critic of constantly massaging the debt ceiling and kicking the responsibility down the street without a thought. I was also in favor of tighter spending, especially when inflation had been a runway for over a year and was becoming entrenched. Yellen has presided over a banking disaster of epic proportion, and the Fed clearly acted too late in taming inflation. I remember when JPMorgan was stating in September of 2021 that inflation was “transitory” – yes, good old Dr. Kelly was stating this on calls. I said, “no possible way.” I ended up being right.
While I don't foresee immediate market upheaval as a result of this downgrade, it is crucial to take ownership of our economic situation. To safeguard our markets and economy, we must become well-informed about the true state of affairs and elect responsible officials who prioritize economic stability – with 65% of adult Americans stating the economy is “very bad” per the CBS news poll released on Sunday – there is work to be done. We face a choice of either accepting the status quo or fighting against it. I am committed to sharing these ideas because my goal is to help you all prosper through prudent investments, free from the whims of government decisions and imprudence.
Where there is will, there is a way. In the name of freedom and your best interests, I pray for change and accountability.
