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Dear Reader,
In 1917, Moody’s downgraded its credit rating of the United States government.
This past Friday… for only the second occasion… Moody’s repeated the 108-year old insult.
The agency downgraded its credit rating of the United States government.
Thus Mooday’s becomes the third credit rating agency to embarrass the United States government in recent years.
Standard & Poor’s executed the initial embarrassment in 2011… when it stripped poor Uncle Samuel of his AAA rating.
In 2023 Fitch executed its own downward estimation.
And now — in 2025 — Moody’s locks its anxious arms with them both.
Why Moody’s present demotion? Why now?
Heading for the Cliff
In Moody’s own telling:
- This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.
- Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.
- We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.
- Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat.
- In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher.
- The US’ fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.
I have but one question to ask of Moody’s:
How do you explain the tardiness?
The fiscal deterioration of the United States government is a long-known and widely recognized abomination.
It did not come creeping in on tiptoe unawares… as if on cat paws.
Moody’s Blames Trump Tax Cuts
Moody’s centers blame upon the president and his tax reductions.
Mr. Trump endeavors to perpetuate them in his “big, beautiful bill.” Moody’s:
- If the 2017 Tax Cuts and Jobs Act is extended, which is our base case, it will add around $4 trillion to the federal fiscal primary (excluding interest payments) deficit over the next decade.
- As a result, we expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.
- We anticipate that the federal debt burden will rise to about 134% of GDP by 2035…
Credible evidence indicates that a debt-to-GDP ratio exceeding 90% yields economic stagnation.
Five House Republicans joined hands with all House Democrats on Friday to strangle the president’s big, beautiful bill in its crib.
The Republican recalcitrants moaned that it lacked the spending reductions fiscal discipline requires.
Yet last evening, four of the naysayers came into camp.
Rather than vote “nay,” they voted “present.”
I hazard the president and his men seized them by the ear this weekend, and read them a severe lesson.
How much carrot was promised — and how much stick was threatened — I do not know.
Yet I hazard the stick weighed greater than the carrot.
My spies are presently seeking details of the conversations.
Up for Floor Vote This Week
Regardless, the 1,116-page enormity journeys from the House Budget Committee to the general chamber.
There it will be subjected to floor vote prior to the House’s self-imposed Memorial Day deadline.
Meantime, federal government debt presently expands by multiples of revenues coming in.
United States public debt excels $36.8 trillion… and swells by the day, by the month, by the year.
Do not expect the arithmetic to alter — in the opposite direction, that is.
That is because the business is a bipartisan affair.
I expect Democrats to spend grandly and gorgeously. I expect them to ransack the Treasury.
Since Roosevelt the Second they have read from the identical electoral blueprint.
Yet Republicans existed, traditionally, for two central purposes — to reduce taxes — and to say no.
Gone the Route of Fedoras, Monocles and Spats
As I have stated before:
Like a sour old schoolmarm with steel in her eye and a rattan in her hand… they might not have been popular.
Yet you knew where they were.
And you could trust them — for a time at least and to a degree at least — with the checkbook.
These Republicans are no more.
They have gone the route of fedoras, monocles and spats.
Only a few Republican holdouts remain… to keep the tablets.
And they wield very little might, as present events demonstrate to a fine fare-thee-well.
Republicans turned from their old-time fiscal religion, made their peace with Big Government… and got elected.
They have simply proven dismal fiscal stewards.
Deficits Don’t Matter
They labeled the old religion “root canal economics.”
Republicans instead sat at the feet of Mr. Arthur Laffer, with his famous curve.
They could spend like Democrats — without annoying the taxpayer to any substantial degree.
Deficits do not matter in the new catechism.
Thus we find ourselves $36.8 trillion in debt absent the economic expansion required to meet the burden.
Thus the credit rating of the United States has absorbed a downgrade by Moody’s.
It is not a severe downgrade. And I do not wish to erect a sheer mountain from a sloping molehill.
Yet it is a downgrade.
And I hazard future downgrades are likelier than future upgrades.
Do you disagree? Based upon what historical example?
In the 1870s the German government refused American bonds — “even if signed by an angel in heaven,” as one fellow styled it.
On some tomorrow, possibly not terribly distant…
Much of the world may decline American bonds… even if signed by an angel in heaven.
What then?
Brian Maher
for Freedom Financial News
