Mint Quick Edit | America’s credit rating slip: How serious?
Rating agency Moody’s has joined S&P and Fitch Ratings in downgrading the credit-worthiness of US sovereign debt. As America undergoes a policy shake-up, is this an over-reaction or under-reaction?
As political rhetoric gives way to reality, what is emerging isn’t looking too great for America. On Friday, it was stripped of the last of its top-notch sovereign ratings by big global credit-risk tracking agencies, with Moody’s downgrading its debt to Aa1 from Aaa. Standard & Poor’s had notched it down in 2011 and Fitch Ratings in 2023.
Also Read: Kaushik Basu: America’s capacity for self-harm is breathtaking
In effect, US debt is no longer the gold standard, though America’s unique position as the world’s reserve-currency issuer still affords it the exorbitant privilege of borrowing cheaply.
Also Read: Barry Eichengreen: The end of American exceptionalism?
This ability, however, may weaken if the US doesn’t find fiscal solutions to curtail its public debt. Global confidence in US economic policies has been rattled on many fronts lately.
Also Read: Barry Eichengreen: The sterling’s past may offer clues to the dollar’s future
Over the weekend, supermarket chain Walmart was asked by US President Donald Trump to “eat the tariffs" imposed by his administration, instead of hiking prices. This attempt at interfering with the decisions of a private profit-oriented company suggests a preference for micro-management that’s unlikely to work in the interests of America Inc.
As seen in the past, rating agencies might be behind the curve—this time on assessing risks borne by US capitalism if Trump’s new policy paradigm takes effect.
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