Billionaires and CEO's Allow Congress to Damage USA Credit Rating

 

Markets Still Weigh the Meaning of a U.S. Credit Rating Cut

By Andrew Ross Sorkin, Ravi Mattu, Sarah Kessler, Michael J. de la Merced, Lauren Hirsch and Ephrat Livni, Aug. 3, 2023, 7:54 a.m. ET, New York Times

White House officials, economists and some prominent Wall Street leaders said the move, which took the U.S. rating to AA+ because of concerns about growing federal deficits and political polarization, was puzzling and wouldn’t have much impact. But others have said Fitch’s move, while largely symbolic, still points to long-term troubles for the nation and its fiscal health.

The U.S. is unlikely to regain its pristine rating any time soon. Richard Francis, Fitch’s primary U.S. analyst, told The Times that a key factor behind the downgrade was America’s intense partisanship, which had led to standoffs on the debt ceiling and forestalls any efforts to reach agreement on taxes or on increasing federal spending.

“There is no willingness on any side to really tackle the underlying challenges,” Mr. Francis said.

But “it doesn’t really matter much,” Jamie Dimon, JPMorgan Chase’s C.E.O., told CNBC yesterday, echoing a common refrain to Fitch’s move. Critics of the move noted that according to criteria laid out last year by Fitch itself, including debt-to-G.D.P. ratio and macroeconomic performance, the U.S. was improving.

Indeed, investors aren’t considered likely to dump their Treasury holdings, given how central U.S. government debt is to global markets. (That’s especially helpful because the Treasury Department plans to issue more debt in the coming months.)

White House officials were surprised by Fitch’s move, believing that they had persuaded the agency’s analysts not to downgrade, according to The Washington Post. The administration scrambled to coordinate a response to Fitch’s move, including noting that the Fitch report dinged the U.S. for governance failures under Donald Trump that, it said, had actually improved under President Biden.

Among Biden administration officials’ worries is that the downgrade could become a political weapon, amid Republican criticisms about federal spending. Indeed, Representative Jason Smith of Missouri, the Republican chairman of the House Ways and Means Committee, said that Biden had “pushed America’s credit rating off the ledge” — even though Fitch said that both parties had contributed to the problems outlined in its report.

Still, some think the points raised by Fitch are valid. Two former Treasury secretaries, Hank Paulson and Tim Geithner, urged Washington to tame growing federal deficits: “Our fiscal trajectory is concerning,” Mr. Paulson told Bloomberg Television, while Mr. Geithner warned that “you want to move the system to act before it’s late and hard.”

And Quincy Krosby, the chief global strategist for LPL Financial, told Bloomberg: “Ultimately, if the deficit isn’t contained, taxes will be raised to the point that the engine of the US economy — the all-important consumer — will have considerably less discretionary income.”

In other Washington news, the hedge fund mogul Bill Ackman said he’s betting against 30-year Treasury notes, a bearish move, believing U.S. inflation will hover around an elevated 3 percent.