American elected officials and taxpayers ignore at their own peril the recent May 16 reduction in the US credit rating. From the highest AAA rating to the next-lower Aa1 rating by Moody’s Ratings, this reduction is the third since 2011, when S&P Global Ratings reduced its rating, followed by Fitch Ratings in 2023.
It does not, however, mean that the US government may default on its Treasury bond obligations or fail to make interest payments on that debt. Rather, the three ratings agencies lowered their ratings because of mounting federal debt (currently over $36 trillion, 122 percent of US GDP) and annual budget deficits (currently about $1.7 trillion, 6.2 percent of GDP). Most economists consider these levels unsustainable. …
If Congress were someday able to control its spending impulses, US borrowing needs might decline significantly. Recall that during President Bill Clinton’s administration the US actually experienced a federal budget surplus from 1998- 2001. Some in government, such as then-Chairmen of the Federal Reserve Alan Greenspan, expressed concern that, at some point, there would be insufficient Treasury debt for the Fed to execute open market operations. While this possibility seems oddly quaint from today’s perspective, the concern at the time was genuine.
There is little indication today that the US credit rating would ever decline to any level below investment grade. Nonetheless, American leaders and taxpayers delude themselves in thinking that debt ratings have no significance to the country’s ability to provide the current services on which today’s generations depend and the entitlement programs that future generations expect.
As the author notes, not only does the trade deficit contribute to the flow of capital into and out of the US in the form of treasury bonds and bills, but budget deficits also contribute to that inflow and outflow. The truly unruly one of the pair is the budget deficits that the politicians and crony capitalists continually foist off on the public that cause the most problems. The consumers’ desires are there no matter where the goods come from but the budget deficit can only be controlled by the people writing the apportionment bills, the politicians. They ought to get to the point where they do all twelve bills instead of One big beautiful bill, an omnibus bill that is just a continuation from previous bills. That is poison.