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Fitch Downgrades Credit Rating of U.S. Government

August 2nd, 2023 Comments off

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.

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U.S. Budget Deficts Are Exploding

March 23rd, 2009 Comments off
Amid the worsening Global Economic Crisis, the Congressional Budget Office fired a lead cannon ball over the bow of the Obama administration’s ship-of-state. Contradicting the claim by President Barack Obama and his economic team that the monstrously huge federal budget deficits would be reduced in half by the end of his first term of office, the CBO is projecting that from 2010 through 2019 the accumulated Federal deficits will reach$9.3 trillion dollars, a sum that exceeds the Obama administration’s own ten year forecast by $2.3 trillion dollars. Peter Orszag, who serves as President Obama’s budget director, is sticking behind the more optimistic projections of the White House. So who is correct?
In my opinion, they are both wrong, though the CBO is closer to reality. In fact, the current fiscal trajectory of the U.S. government promises only an ocean of red ink, with deficits soaring through the stratosphere. To begin with, the Obama administration is projecting an end to the recession by the end of the year, with growth returning in 2010 and becoming increasingly more robust. This is sheer fantasy; the U.S. is only in the earliest stages of the worst economic crisis since the Great Depression of the 1930s, with government tax revenues set to contract at unprecedented rates just as Federal government expenditures are ballooning through the proverbial roof. As for the CBO, a year ago they forecasted that the U.S. budget deficit for 2009 would be “only” just over $200 billion dollars, versus the current Obama administration’s “optimistic” forecast of $1.7 trillion. In addition, prior to George W. Bush assuming office as America’s 43rd president, the CBO was assuring policymakers that they could count on budget surpluses far into the future.

In earlier posts I projected the U.S. budget deficit for 2009 at above $2 trillion, with a good chance of exceeding $2.5 trillion. If anything, the fiscal posture of the United States continues to deteriorate, as her economy sinks into free fall collapse, dragging much of the world down into this economic death spiral. In effect, the U.S. budget has become a candle burning at both ends, as a convergence of dwindling tax revenue and exploding expenditures on banking and corporate bailouts and so-called “stimulus packages” becomes a deadly embrace. On top of this apocalyptic news, the U.S. has more than $60 trillion in unfunded social security and Medicare obligations.

The U.S. budget deficits, and the cascading national debt that is resulting from this acute fiscal imbalance, may create an irreversible slide into national insolvency. It could be that the “good faith and credit” of the U.S. government will not survive the Global Economic Crisis.

 

 

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