The US government’s fiscal health has deteriorated over the last 25 years. The national debt has spiraled out of control; the budget deficit will likely remain above $1 to $2 trillion for the foreseeable future, and interest payments are eating a sizable chunk of tax revenue. With Uncle Sam’s hemorrhaging out in the open, what took Moody’s so long to respond? Did President Donald Trump perturb the credit rating agency by not sending a gift basket after the 2024 election, or did analysts only recently learn about the red ink flooding Capitol Hill?
Moody’s Downgrades America
On a quiet May 16 afternoon, Moody's downgraded the US long-term credit rating by one notch, from its perfect "Aaa" score to "Aa1." Moody's was the last of the "Holy Trinity” credit rating agencies – Fitch Ratings and Standard & Poor’s being the other two – to lower the US government's outlook, citing "large annual fiscal deficits" and "growing interest costs." The firm added that the reduction "reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.”
Moody's statement also expressed doubts about the future, noting that fiscal policies under consideration are unlikely to significantly reduce mandatory spending and deficits. At the same time, the group also pointed out the country's "exceptional credit strength," the US dollar hegemony, and the Federal Reserve's "very effective" monetary policymaking.
The White House dismissed the action. In a May 18 interview with NBC's Meet the Press, Treasury Secretary Scott Bessent called it a "lagging indicator,” asserting that the rating reduction resulted from the previous administration’s policies. Other market analysts have questioned the timing of the move, wondering why Moody’s would suddenly make this announcement.
‘A Political Agency’
Stephen Moore, one of the nation's top economists and a previous guest on Liberty Nation News' Swamponomics TV program, asserted that Moody's is no longer a credit rating agency but rather "officially a political agency." He alluded to Moody’s lack of action during former President Joe Biden's term. “They downgraded America’s credit rating from Triple A under Trump, but before, when Biden spent $5 trillion and sent inflation to 9% – no problem at all. Trump’s pro-growth tax cuts make America richer and reduce credit risk," he said in a statement.
White House Communications Director Steven Cheung stated that Mark Zandi, Moody's chief economist, "is an Obama advisor and Clinton donor who has been a Never Trumper" for nine years. "Nobody takes his 'analysis' seriously. He has been proven wrong time and time again," Cheung said on the social media platform X.
While this might be a case of sour grapes, both Moore and Cheung make a compelling case. Indeed, Moody's warned in 2023 that the US triple-A rating was at risk. However, Fitch already downgraded that year, and S&P Global Ratings did so in 2011. This leads to an interesting question: What exactly was Moody’s waiting for?
Here is the scorecard during Biden’s entire term in the White House: The national debt surged by about $9 trillion; inflation reached a 40-year high of 9.1%; the budget deficit was just below $2 trillion in his final year, and interest costs are now roughly $1 trillion a year. Even taking the bipartisan 2023 debt ceiling suspension agreement at face value, the deal between Biden and former House Speaker Kevin McCarthy (R-CA) did little to improve America’s financial situation.
Put simply, Moody’s could have slashed the country’s credit score at any moment between 2021 and 2024, but it chose to be different from its counterparts and sit on the sidelines.
Complaints Are Warranted
Still, complaints about fiscal measures instituted by President Trump and Republican lawmakers should be fair game. The Department of Government Efficiency (DOGE) has been a good idea, in theory, but has it led to substantial savings for taxpayers? The Elon Musk-led entity has yet to deliver anything substantive in the hard data. So, for now, the GOP’s promises of resurrecting fiscal responsibility should be found in the “one big beautiful bill.” Taxpayers may need a microscope to find spending cuts.
According to the Congressional Budget Office, the federal government will spend $89.3 trillion over the next ten years. Based on the Republicans' House Reconciliation bill, Washington will instead spend $88.1 trillion over the coming decade. Additionally, Moore's Committee to Unleash Prosperity writes, "What's even more depressing is that the Senate instructions have an infinitesimal $4 billion in cuts (and $521 billion in increases)."
So, critics in the media are howling at the moon, issuing doom-and-gloom prognostications that minuscule reductions in federal outlays will devastate the American people. Either they have not studied the numbers, or they are misleading the public – or both!
At the same time, the impact on the deficit might be overstated. Various estimates suggest that the legislation prioritizing the president's tax agenda will increase federal deficits by between $4 and $5 trillion. These estimates depend on 2% (or less) economic growth. If the lower tax rates in the Tax Cuts and Jobs Act are extended permanently, the GDP growth rate could receive a boost. Kevin Hassett, the National Economic Council director, recently forecast that if the tax bill results in 3% growth, revenues could soar by about $4 trillion.
It may be a tired trope by now, but it is the perennial adage: America does not have a revenue problem, it has a spending problem.
Turning to Black
Red ink has engulfed the White House and Congress, forcing fiscal conservatives to hang signs in the corridors of Capitol Hill with the classic Dante Alighieri phrase, "Abandon all hope, ye who enter here." The single-notch downgrade by Moody’s may be another exhibit of too little, too late. Considering the financial markets’ muted reaction to the news, everyone on Wall Street and Main Street is well informed of Washington’s monetary ailments. The public is now waiting to determine if Trumponomics 2.0 can slay the Leviathan or merely make paper cuts to the monstrosity.
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