US politicians are understandably unhappy about Fitch Ratings Agency’s decision to downgrade the U.S. debt rating from AAA to AA+ on Wednesday.
A statement from President Biden’s press secretary Karine Jean-Pierre read: “We strongly disagree with this decision.
“The ratings model used by Fitch declined under President Trump and then improved under President Biden, and it defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world.”
The decision was prompted by concerns surrounding the state of the country's finances and its mounting debt burden.
Fitch pointed to a "steady deterioration" in governance over the past two decades as a contributing factor to the downgrade, while expecting a “fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance”.
Who's to blame? Depends on who you ask
Unsurprisingly, the White House is pointing the finger in the direction of the Republican party.
Jean-Pierre’s statement went on to add that it is “clear that extremism by Republican officials—from cheerleading default, to undermining governance and democracy, to seeking to extend deficit-busting tax giveaways for the wealthy and corporations—is a continued threat to our economy.”
Earlier, US Treasury Secretary Janet Yellen criticized Fitch’s downgrade, deeming it "arbitrary" and based on outdated data from 2018 to 2020.
"Treasury securities remain the world's preeminent safe and liquid asset… the American economy is fundamentally strong," she said.
'Reckless fiscal policy'
There’s been no official statement from the GOP, but Congressional Republicans did decry government spending and deficits.
House Budget Chair Jodey Arrington (R-Texas) told Politico that the downgrade “is a wake-up call to get our fiscal house in order before it’s too late.”
And Blaine Luetkemeyer of Missouri, a Republican who voted to overturn the 2020 election results on January 6, added there is “no question that our nation’s debt is unsustainable.”
“Reckless fiscal policy that caused the inflation we’re still suffering is also harming confidence in our currency and treasuries,” the Congressman told Politico.
Credit ratings play a crucial role for investors in assessing the risk associated with lending money to governments.
The US is generally considered a highly secure investment due to the size and relative stability of its economy, but the country has faced political challenges concerning government borrowing this year.
A battle over lifting the debt ceiling to US$31.4 trillion nearly resulted in a default on the country’s debts.
Contact Angela at angela@proactiveinvestors.com
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