American credit has maintained a AAA rating with Moody’s since 1917. Today, Moody’s remains the only agency to hold that rating. Standard and Poor’s (S&P) and Fitch Ratings have downgraded the United States to AA+ in 2011 and 2023, respectively.
On Nov. 10, however, Moody’s lowered its U.S. credit outlook from stable to negative, indicating it would issue an official downgrade unless fiscal conditions improve.
Biden Administration officials quickly rejected the decision. “Moody’s decision to change the U.S. outlook is yet another consequence of Congressional Republican extremism and dysfunction,” White House press secretary Karine Jean-Pierre stated.
Deputy Treasury Secretary Wally Adeyemo disagrees with the negative outlook shift, insisting “the American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset.” During a press conference Monday, Treasury Secretary Janet Yellen parroted Adeyemo’s comments.
Finger-pointing and outright dismissal obscure the reason Moody’s slashed its outlook. Per the rating action, the key driver of Moody’s decision is an increase in the downside risks to U.S. fiscal strengths, not the activities of one of America’s political parties. The nation faces a worsening debt crisis, and ratings agencies and traditional buyers of American debt are taking notice.
National debt is approaching $34 trillion, with a $1.7 trillion deficit last fiscal year and $1.6 trillion expected borrowing for the current half-year. High interest rates have made interest payments on the debt costly, around $1 trillion annually and rising.
The Biden Administration shows no sign of stopping runaway spending or issuing a stream of costly regulations. In October, the Treasury borrowed $275 billion on a single day, totaling over $500 billion by month’s end.
Instead of addressing the issue head-on, the administration changed how it measured the costs and benefits of regulations last week. It lowered the discount rate (cost), for climate regulations and other progressive policies, making them appear less expensive.
Traditional debt buyers know the situation is untenable. In the most recent treasury auction, the government attempted to sell $24 billion in 30-year notes but had to increase rates to attract buyers. Even then, it could only sell 75% of the offering, forcing it to rely on primary dealers (financial institutions obligated to serve as buyers of last resort) to purchase the remaining 25%. Foreign buyers are also reducing their exposure.
Biden’s bureaucrats can claim the U.S. Treasury is still the safest and most liquid asset in the world, but buyers’ actions suggest otherwise. The Treasury’s own borrowing committee, the TBAC, recently acknowledged decreased demand for US Treasuries among traditional buyers.
The U.S. is facing a fiscal crisis, but instead of reducing spending, officials in Washington are choosing to gaslight the American people. Moody’s credit outlook shift is the latest acknowledgment of this reality.
Traditionally, U.S. Treasuries have been viewed globally as a “risk-free” asset, a concept untested in our modern financial era. Under the current administration, this long-standing perception might soon be challenged.
David Waugh is a business development and communications specialist at Coinbits. He previously served as the managing editor at the American Institute For Economic Research.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.