In 2011, after years of unhindered stimulus spending by the Obama administration, Standard & Poor’s downgraded America’s AAA credit rating. Now, Fitch is poised to do the same in response to Joe Biden’s refusal to negotiate a deal to cut spending in return for an increase in the debt ceiling. Ruth Carson reports in Bloomberg that Fitch has placed its AAA rating for US debt on negative watch, writing:
The tension around the US debt-limit negotiations ratcheted up after Fitch Ratings warned the nation’s AAA rating was under threat from a political standoff that’s preventing a deal.
Fitch may downgrade its assessment to reflect the increased partisanship that is hindering a resolution despite the fast-approaching so-called X date, it said, referring to the point at which Washington runs out of cash. It moved the US to “rating watch negative” under its classification. Meantime, DBRS Morningstar placed the US ratings of AAA under review “with negative implications.”
Markets have been showing increasing nervousness over the standoff, with Treasury-bill yields slated to mature early next month surging past 7%, while the S&P 500 Index has declined for two days. Economists project a US default could trigger a recession, with widespread job losses and a surge in borrowing costs.
Action Line: Protecting America’s place in the global economy is important. You can read here in my latest research report from Paris and Rome that the dollar is losing respect abroad.
E.J. Smith - Your Survival Guy
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