The United States loses the maximum debt solvency qualification | Economy

The United States is no longer a solvency model. The world’s first economy has lost the maximum credit rating by the three major specialized agencies. Standard & Pooor’s withdrew the AAA in 2011; Fitch did it in 2023 and, since this Friday, Moody’s does not grant him the outstanding one. The high public deficit and the unsustainable path of debt punish the US Treasury debt note at a time when its role as a safe refuge has also been questioned by the economic and commercial political chaotic of its president, Donald Trump. The Moody’s report contains some veiled allusions to Trump’s authoritarian drift.

Moody’s has reduced the long -term issuer rating and the unusual senior qualification of the United States Government to AA1 and has changed the perspective of negative to stable. “This reduction of a step on our scale of 21 levels reflects the increase, for more than a decade, of public debt and interest payment ratios to significantly higher levels than those of other sovereigns with similar qualifications,” says the agency in a statement released this Friday.

A lower credit rating causes investors to require higher interest rates due to debt. The loss for the first time of the maximum credit rating affected the markets, but we will have to see what the answer is this time, since US fiscal problems are well known.

Agency analysts point out that successive administrations and the United States Congress have failed to agree on measures to invest the tendency of large annual tax deficits and the increase in interest costs.

“We do not believe that the fiscal proposals that are currently being studied give rise to significant reductions of mandatory spending and deficits for several years,” reference to the republican budget plans. “During the next decade, we expect higher deficits, since the expense in social benefits will increase, while public income will remain practically stable. In turn, high and persistent fiscal deficits will increase the debt and load of the government’s interests. It is likely that the US fiscal results deteriorate in relation to their own history and compared to other sovereigns with high qualification,” explains the statement.

According to Moody’s, the stable perspective that the new qualification reflects the balanced risks. “The United States maintains exceptional credit strengths, such as size, resilience and dynamism of its economy and the role of the US dollar as a world reserve currency. In addition, although the last months have been characterized by a certain degree of political uncertainty, we hope that the United States will continue with its long very effective monetary policy career directed by an independent federal reserve,” he says.

Trump has questioned the independence of the Central Bank and its pressures for a reduction of types have been counterproductive. Uncertainty about American economic policy is also the responsibility of the president, who inherited from Joe Biden an economy that was the envy of the world.

Authoritarian derives

Without saying it with those words, Moody’s is confident that American democracy will resist Trump’s authoritarian drift. “The stable perspective also takes into account the institutional characteristics, including the constitutional separation of powers between the three branches of the government, which contributes to the effectiveness of policies over time and is relatively insensitive to the events in the short term. Although these institutional mechanisms can sometimes be tested, we hope that they remain solid and resistant,” he argues.

In fact, in a rare mention, he expressly points out that he trusts that the rule of law be maintained, as if it were no longer something that could occur. “The qualification is based on our hypothesis that the institutions and governance of the United States will not weaken significantly, even if they are subjected to evidence at certain times. In particular, we assume that the controls and counterweights that have long existed between the three powers of the State and respect for the rule of law will be maintained, in general, without changes,” he says.

In addition, it launches a notice to navigators. He says that the qualification “if the efficacy of the policies or the strength of the institutions deteriorate to the point of significantly weakening the credit profile of the sovereign issuer” could be reduced. “This would happen whether this caused a deterioration of growth in the medium term or the resistance capacity of the economy against disturbances, or if it was accompanied by a significant and lasting exit of international investors of the US dollar,” he says, something that has happened at the time of Trump’s political erratic.

The reduction has economic foundations. For more than a decade, the United States federal debt has increased considerably due to continuous fiscal deficits caused by the increase in spending and tax cuts. As the deficit and debt have grown, and interest rates have risen, interest payments of public debt have increased significantly.

The decision is produced on the same day that a commission of the House of Representatives has blocked the processing of a fiscal law promoted by Donald Trump that would involve tax sales at the expense of a strong increase in the public deficit. Congressmen of the Hard Republican wing have voted against the project precisely for their concern about public accounts.

Moody’s has a hypothesis that the Law of Fiscal Cuts and Employment of 2017 is extended, one of the points of that now stuck rule, and warns that this will be added about four billion dollars to the federal fiscal fiscal deficit (excluding interest payments) during the next decade.

“As a result, we hope that the federal deficit will be extended to almost 9% of GDP in 2035, compared to 6.4% in 2024, mainly driven by the increase in interest payments of the debt, the increase in expend Moody’s.

According to the agency, it is likely that federal interest payments absorb about 30% of fiscal income in 2035, compared to 18% in 2024 and 9% in 2021. The burden of interests of the whole of public administrations, which takes into account the federal, state and local debt, absorbed 12% of the income in 2024, compared to 1.6% of sovereigns with AAA rating.

“While we recognize the important economic and financial strengths of the United States, we believe that these no longer completely counteract the decrease in fiscal indicators,” concludes the agency.

Moody’s also points out the strengths of the US economy, which combines a very large scale, high average income, a strong growth potential and an innovation history that supports productivity and growth of GDP. “While GDP growth is likely to slow down in the short term as the economy adapts to the highest tariffs, we do not expect the long -term growth of the United States to be significantly affected,” he says.

The agency emphasizes that the status of the US dollar as a dominant reserve currency in the world provides important credit support. It helps the Government to finance the high annual fiscal deficits and to refinance its high debt to a moderate and relatively predictable cost. “Despite the diversification of reserves by the central banks around the world in the last twenty years, we hope that the US dollar will remain the dominant reserve currency worldwide in the predictable future,” says Moody’s.