America's Talking - ‘Wake-up Call’: Top Credit Agency Downgrades U.S. Rating

Episode Date: August 6, 2023

One of the top international credit rating agencies has downgraded the United States government’s credit rating from the highest level of AAA down one tier to AA+, a serious economic signpost as U.S. debt continues to soar and deficits remain elevated. Fitch Ratings made the decision, pointing to the U.S. government’s high national debt and deficits as well as an “erosion of governance.” Support this podcast: https://podcasters.spotify.com/pod/show/america-in-focus/support Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hello and welcome to America in Focus powered by the Center Square. I am Dan McAulb, executive editor of the Center Square Newswire Service. Joining me again today is Casey Harper, the Center Square's Washington, D.C. Bureau Chief. How are things in the nation's capital, Casey? Oh, just cheery and bright as ever, Dan. It has been a week, but we could say that every single week. That would be redundant. Casey, there was pretty big development this week when it comes to U.S. government's debt with a major credit agency downgrading U.S. government's debt rating. What's going on? This is not a good story. Yeah. I mean, definitely not cheery or bright, as I quipped. I mean, this is what one person called, one expert called a wake-up call. The top credit agency is downgraded. The U.S. is credit rating. The credit rating is like, you could think of it like a credit score for the United States. You might think, why does the United States need a credit score?

It's like, well, you have these independent international credit rating agencies that assign credit scores because big banks, other countries, big banks and other countries, you know, want to know how safe of an investment it is to take to buy U.S. debt. You know, it can also affect the currency. and basically this there are three top credit agencies in the world and fit ratings is one of them and they announced this week that they actually downgraded the US credit score from a perfect score of AAA down to the next tier which is double A plus so here's obviously this quote from them they kind of released a lengthy statement explaining it but this quote is interesting the rating downgraded of the US reflects the expected fiscal deterioration not a good word over the next three years a high and growing

general government debt burden, so high debt, and the erosion of governance related to AA and AAA-Rated peers over the last two decades. That's things like how we always, we don't really pass a real budget and how we always get on the brink of government shutdowns, it seems, every year. That has manifested in repeated debt limit standoffs and last-minute resolutions. So it pointed to, we have a ton of debt. It's rising, which is true. The debt is absolutely exploded over the last couple of decades. People don't realize we basically had just no debt a few decades ago and certainly no ridiculous deficits like we have now. But the Iraq War and then the 2008 financial crisis sort of set up this trajectory of borrowing, just unhindered borrowing.

And we continued that through the teens of the 2000s. And then COVID came and we just felt, you know, Congress, even on both sides, really, injected trillions of dollars into the economy to protect it from the COVID-era shutdowns that were implemented. And here we are with, you know, over trillion dollar deficits. I've written a lot about on how serious the debt is, but I'll throw out some scary stats for you, Dan. By the end of 2053, you know, basically in 30 years, the U.S. debt is going to be almost double the size of the entire U.S. economy. That one right there. It's crazy. Around that same time, interest payments on the national debt will become the biggest expense of the U.S. government.

Not Medicare, not Social Security, not national defense, but just interest payments on the national debt. And of course, spending that much money on interest payments, you're unable to spend that money on direct government services, such as health care, Medicaid, national security, things like that. Or paying down the debt, right. I mean, so it's a snowball. I mean, anyone who's been in a lot of credit card debt knows what this feels like. And that's exactly where the U.S. is headed, where your interest payments, you know, alone are maybe more than your car payment. You're like, how do I get in this situation? Well, that's where the U.S. is headed. And the, you know, politicians on the left and right, and they both do it can talk about how it's other people's fault. And they can say that there's this and this. But when it comes down to the numbers and it comes down to other people's money, this credit agencies, certain point just have. to be straightforward and honest about what's going on. So this is a really serious marker. It's a really, I agree with the expert that this should be a wake-up call. I'm not entirely optimistic that it will be. I don't know what you think, Dan. Is our lawmakers in Congress going to have a road to Damascus moment? Well, we, of course, at the Center Square have been reporting

on the growing debt problem, the U.S. faces for years. now. Fiscal government watchdogs have been warning Congress and overall federal government of the growing concerns about out of control spending. So it's not like this is new that Congress certainly has known, Congress and presidents of both parties have known that we've got a growing debt problem, but no one seems to have the nerve to rein in government spending. it comes down to out-of-control government spending. And until Congress steps up and said, hey, we have to slow spending.

We have to cut spending. This problem is only going to get worse. So do I think this is a wake-up call that's going to tip Congress? No. There's been, I mean, actions from the past are a good indicator of future actions, right? And we've seen no indication that a partisan solution, Republicans and Democrats, getting together to curb government spending to pay down the debt. So I don't think so, but what do you? Well, Dan, as you know, I'd never disagree with you, especially in public. But no, I'm just talking.

But I think you're right. Yeah, I don't have much hope. Maybe I'm cynical. Maybe I'm just around this city too much. And I don't think people are going to change. But it's a true prisoner's dilemma where everyone knows that something needs to happen, but it's in everyone's incentive personally to not be the one to make it happen. And so any lawmaker who steps out and says, we need to cut Social Security significantly and cut defense spending and cut all these discretionary programs, they just created 100 campaign ads against themselves from someone who can say, this candidate hates the elderly, they hate the poor, they hate health care, they hate women, and just run those ads against them and they'll lose.

And so I don't know, Warren Buffett made a joke recently. I thought was interesting. He said the way to do this is to make it where all, the past the law, it says all members of Congress are ineligible for reelection if, I think he said something like if the deficit isn't within attack to GDP or something like that, which, you know, who knows that will ever happen. But it illustrates the point that unless all lawmakers somehow are collectively endangered by this. There's no incentive for them to do it. And honestly, I'm not sure the American

people want it. I mean, I think Americans know the debt is bad and they want it to be cut in a big picture way, but nobody wants to be the one to have the thing that they care about cut. And so I don't know. It's a scary thing. And of course, nobody wants to raise taxes either. So we're on a bad trajectory with nothing, no good end inside. There's got to be some creative way to change this scenario or it's not going to change. Well, I guess really the only power we have, and when I say we, voters, me, you, our listeners, is to hold elected officials, particularly Congress and the President, accountable for this. We are about 15 months away from the next, not just presidential election. There is a presidential election in November, 24, but every single

member of the U.S. House of Representatives will be on the ballot. What, about a third of U.S. senators will be on the ballot. I just encourage voters to get informed. And if this is an important issue to you, if this national debt, growing budget deficits, government spending is an important issue to you, as I think it should be. It is to me, certainly. Get informed and let your elected officials know that it's a big important issue for you. And when it comes to next year's elections, vote on it. Anyway, Casey, we are out of time. Listeners can keep up with this story about growing national debt and more at the

center square.com for Casey Harper. I am Dan McAulb. Please subscribe and thank you for listening.