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Why Rating Agency Downgraded America Now?

Updated: Aug 10, 2023

By Wong Kon How

  • A broken US political system and

  • The nation physical plan


On 02 August, Fitch Ratings cut its US debt rating from AAA to AA+, citing a steady deterioration in standards of governance. The rating agency has also downgraded mortgage giants Fannie and Freddie from AAA to AA+, expecting other insurance group should be affected as well.


Fitch decided to remove America’s perfect credit rating, expressed concern about large and growing fiscal deficits and the mounting cost to finance US debt as interest rates rise, and is defending its controversial decision to downgrade the US credit rating by pointing to the nation’s mountain of debt.


“The numbers speak for themselves,” Richard Francis, the lead analyst on US sovereign ratings at Fitch, told CNN. America’s debt makes up 113% (and growing) of its economic output, which it is “clearly pretty alarming.”


• The nation physical plan


“We do feel like governance has deteriorated steadily over the last 20 years,” Francis said. “Because of that, we have less confidence that the government can tackle these fiscal challenges.”


Those challenges include addressing long-term issues surrounding Social Security and Medicare – problems that may require politically unpopular moves and compromises. Francis noted that the nonpartisan Congressional Budget Office projects that the Social Security fund will be depleted by 2033.


• A broken US political system


Francis expressed alarm at the “political polarization on both sides” of the aisle. “Democrats have moved left. Republicans have certainly moved right. And the center’s fallen apart. That just makes making difficult decisions very, very difficult and challenging,” Francis said. “We see very low appetite for really tackling these fiscal challenges.”


The downgrade has quickly become a political issue, with Democrats blaming Republicans, and vice versa.


Asked if either party is more at fault for America’s fiscal problems, Francis indicated there’s more than enough blame to go around.


Reference:

CNN



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