Fitch Downgrades Credit Rating of U.S. Government
Sheldon Filger-blogger for GlobalEconomicCrisis.com
One of the leading credit rating agencies, Fitch, had lowered its assessment of credit worthiness of the U.S. from the top level of AAA to AA plus. Though only a notch lower than the top level, the new rating by Fitch may be the start of a disturbing trajectory for American sovereign debt.
The explanation given by Fitch for lowering its rating on U.S. Government debt has been what it views as the deterioration of governance in the USA over a period spanning two decades. The evidence of this is apparent to any observer of political discourse and activity in the U.S. and raises questions about the long-term stability of the American political system. The economic and financial repercussions of those internal developments will now have a steep cost, as Fitch is likely to be followed by other rating agencies.
While U.S. Treasury Secretary Yellen has been joined by leading analysts in decrying the move by Fitch, it is clear that this rating agency is looking far beyond current economic data, which on paper makes the Amerasian economy appear strong, especially compared with other major economies. It must be noted that the U.S government functions on a a sea of red ink. It must constantly borrow vast sums of money to function. What has made that vast debt edifice functional has been credit access tied to the lowest possible borrowing costs. The decision by Fitch is an indication that the costs of sovereign borrowing by the U.S. will escalate. This opens up the possibility of a long-term sovereign debt crisis in the U.S., which would have devastating consequences far beyond\d America’s shores.
In 2022 the U.S. federal government deficit was 1.4 trillion dollars, representing 5.5 % of GDP. Total federal spending was 6.3 trillion dollars, with revenue of only 4.9 trillion dollars. Interest paid on the national debt that same fiscal year was 476 billion dollars, presenting a whopping 35 % increase over the prior year. Now, with the first crack in America’s AAA credit worthiness having occurred, substantial increases in annual debt servicing costs are to be expected, eating up a growing percentage of the federal government’s fiscal capacity.