Moody’s Warns America’s Credit Rating Could Be Downgraded

JM Ashby
Written by JM Ashby

The greatest threat to America's exceptional credit ratings is the ever-present possibility that we'll breach the national debt ceiling and default on our debt payments, but there's another threat.

The other, potentially greater threat is the non-existent fiscal discipline of Republicans who've set us on a path to incredible deficits and debt in the very near future.

Moody’s Investors Service is now warning that our credit rating will face "downward pressure" in the near future because there's virtually no expectation that our situation will improve.

The U.S., which is rated Aaa with a stable outlook, faces “downward pressure in the long-term, due to meaningful fiscal deterioration,” Moody’s analysts Sarah Carlson and Yves Lemay wrote Friday in a report. “Rising entitlement costs and rising interest rates will cause the U.S.’s fiscal position to further erode over the next decade, absent measures to reduce those costs or to raise additional revenues.”

The report comes as President Donald Trump signed a two-year budget agreement that will boost federal spending by almost $300 billion. The nonpartisan Committee for a Responsible Federal Budget said the deal would add a net $320 billion to deficits over a decade, or $418 billion when factoring in additional interest costs. That’s on top of an estimated $1 trillion added to the deficit over 10 years by the Republican tax-cut legislation passed in December.

No one wants to talk about it right now, but the only way we'll be able to pull back from the brink is by dramatically raising taxes.

Even if Democrats retake control of Congress, and even if a Democratic candidate is able to defeat Trump in 2020, it will still be very difficult to claw back the revenue Republicans chose to ship out the door while they had total control. And there's no guarantee Democrats will be victorious. There's no guarantee Democrats will even have a chance to raise taxes. Even assuming they do win the next two elections, it will be incredibly difficult to assemble a majority in Congress that is willing and capable of raising corporate taxes and taxes on the rich by the amount that is necessary.

If Democrats do not win the upcoming elections, Republicans will undoubtedly try to solve our problems by cutting healthcare and social assistance programs, but even that won't be enough. They could eliminate every social welfare program from food stamps to Pell grants and it still wouldn't cover the cost of their tax cuts.

All things considered, it's easy to understand why Moody's is not optimistic about our fiscal future.

The federal deficit increased dramatically under George W. Bush and during the early years of the Obama administration when we were still digging out of the recession, but Republicans in 2018 will explode the deficit much quicker than any president has since at least World War II.

The era of $1 trillion deficits is behind us and the era of $2 trillion deficits is in front of us.

Sleep tight.

  • katanahamon

    “Entitlements”…yeah, not outrageous military spending, lack of revenue due to irresponsible tax cuts…complete financial policy ignorance…

  • katanahamon

    Tax and spend is at least logical..spend and spend more doesn’t work…

  • Draxiar

    I know I keep banging this drum but here we go…Dems HAVE to use this fiscal negligence (read: tax overhaul) as a weapon in the next few years of elections. Democrats somehow got the lable of being the “tax and spend” party. Yet, like clockwork, deficits always rise under a GOP Congress…such a mystery. The GOP is the person at the table that orders the most expensive things on the menu and then leaves without paying.

  • muselet

    I notice, without surprise, that Sarah Carlson and Yves Lemay blame “rising entitlement costs and rising interest rates” for future downgrading of the US’s credit rating.

    Not buying useless military hardware at inflated prices. Not insane tax policy (in fairness, they do eventually get around to mentioning the “recently-agreed tax reform,” but only because it “will exacerbate and bring forward those pressures”). No, it’s *scary music sting* entitlements and ZOMG! rising interest rates!

    “Entitlements” is a shorthand way of describing any government program that doesn’t push money upward, and inflation is only a concern when it’s caused by the ever-terrifying prospect of wages increasing.

    To be clear, fiscal discipline is a good thing. Deficits matter, kinda, as does the national debt, kinda. But those kindas depend on the US managing to run small deficits year-to-year, which we were doing until the Rs got their grubby little mitts on the levers of power.

    Shorter me: Moody’s correctly identifies the effect, but not the cause.


    • JMAshby

      I agree with you, but that’s not exactly how I read their words. It’s possible I’m being too generous, but I took it as a cumulative assessment of the fact that we have to fund Medicare and other programs for an increasing number of retiring boomers but, at the same time, federal revenue is set to plummet and we have no savings so interest rates are going up.

      The cost of those programs or “entitlements” (I don’t like that word either) was going to increase anyway, but now we’re even less prepared to pay for it thanks to the GOP.

      It’s really something when you think about it. Paul Ryan and the other fakes have been warning about rising costs that are suppose to hit hard sometime between 2020 and 2024, but they’ve exacerbated the situation with their tax cuts and higher spending.

      President Obama used to talk about that, too, and one the reasons he made it a priority to responsibly cut the deficit over his two terms (while still expanding the safety net under Obamacare) is because it would prepare us to face the future. But Republicans in Congress have obliterated most of his efforts in just one year. The deficit could be $2 trillion by fiscal 2020 and we could be in a recession.

      Trump is going to ride into the 2020 campaign with a fiscal catastrophe in his wake. I don’t think most people, even those paying attention, know what’s coming.

      We’re Great Again™

      • muselet

        I’m probably being too cynical, but mainstream economists seem to have internalized every free-market cow pie Milton Friedman ever deposited. That a Moody’s analysis identifies entitlements and inflation, not irresponsible revenue cuts, as the reason for concern makes me nervous.


    • MadJuana

      Every time somebody trots out the term “entitlements” I have an intense desire to slap ’em up side the head.

  • ninjaf

    Not for nothing, but isn’t Moody’s one of the rating agencies that was rating those derivatives that caused the 2008 recession as “triple A”?

    • Yes, and it didn’t hurt them in the slightest so far as I can tell. They’re still an important arbiter of determining ratings.

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  • Badgerite

    This, of course, is why the GOP, McConnell and Ryan, avoided ‘regular order’ like the plague in enacting their tax ‘deform’
    bill. This is precisely the reason. They didn’t want it one the record that the result of this would be fiscal instability as far as the eye could see. They claimed the tax cuts would pay for themselves. The markets and financial raters don’t really operate on principles of ‘alternate reality’. They are running the American budget like a ffffffing trump casino.
    And we all know how that turned out.

  • Username1016

    I’ll be donating my stupid unnecessary tax cut to Act Blue every month. You do what you can.

    • Toolymegapoopoo

      Similar here. We’re donating ours to Planned Parenthood.

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