Will Kessler
Daily Caller News Foundation
Experts blamed President Joe Biden’s administration for the downgrade of the US credit rating on Tuesday, they told the Daily Caller News Foundation.
Fitch Ratings downgraded the U.S. Long-Term Foreign Currency Issuer Default Rating from “AAA” to “AA+”, meaning the government may soon need to pay more to finance its debts. The Biden administration is the reason for the U.S.’ loss of credit trustworthiness due to policies that have led to high spending and a huge deficit, experts told the DCNF.
“This has been a direct result of the Biden administration spending, borrowing, and printing too much money,” E.J. Antoni, research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the DCNF. “As the yield on US Treasuries marches higher, the cost to service the debt is exploding. The Treasury is spending an annualized $1 trillion according to the latest monthly data from the Fiscal Service. This interest expense adds to the deficit which snowballs into a faster growing debt, which means even more expensive financing costs, higher interest rates, etc. That’s a death spiral.”
Fitch Ratings cited rising deficits and the high GDP-to-debt ratio, which totals 112.9% this year, as some of the reasons for the downgrade, according to its press release. The agency also cited repeated debt standoffs over the last 20 years and referred to a June incident where lawmakers almost missed the deadline to extend the debt ceiling.
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“For the second time in history, the first having been in August 2011, the credit rating of the issuer of US Treasury bonds, the US government, has been downgraded,” Peter Earle, economist at the American Institute for Economic Research, told the DCNF. “What this means is that there is increasing doubt about the US government’s ability to meet its financial obligations.”
US Treasury Secretary Yellen called the US credit downgrade by Fitch “outdated.” Quite accurate: the current median debt-to-GDP ratio of AAA-rated sovereign debt issuers is currently 39.3%. The last time America’s debt-to-GDP ratio was at that level was between 1978 & 1979.
— Pete Earle (@peter_c_earle) August 2, 2023
White House Press Secretary Karine Jean-Pierre said on Tuesday that “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 Biden administration has undertaken a handful of major spending initiatives (the Inflation Reduction Act, the CHIPS and Science Act, infrastructure spending) which have resulted in massive deficits,” Earle told the DCNF. “The Federal deficit hit $1.39 trillion for the first nine months of the current fiscal year, 170% from the same point the previous year.”
While Earle emphasized that the credit downgrade will have minimal immediate impact on American citizens, he noted that the higher cost of debt could be passed on to average Americans.
“If taking on debt becomes substantially more expensive, the government may shift toward some more painful ways of meeting its obligations, like raising taxes or expanding the money supply (inflation),” he told the DCNF.
Fitch Ratings predicted a recession starting in the fourth quarter of 2023 later this year and extending into the first quarter of 2024, according to its press release. The agency also predicted that the Federal Reserve will raise interest rates by September to between 5.5% and 5.75%.
“Governments who issue their own currency have the ability to inflate away their debt by devaluing the money which will be used to repay that debt,” Antoni told the DCNF. “Under Biden, that’s exactly what has happened. The dollar has lost 16% of its value. If you bought US Treasuries when Biden was inaugurated, your investment has lost value after adjusting for inflation. That’s an implicit default and is fundamentally no different than the government refusing to pay 16% of what you’re owed.”
The White House did not immediately respond to a request to the DCNF’s request for comment.
This story originally was published by the Daily Caller News Foundation.
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