On August 1, the rating agency Fitch dropped the U.S. government’s longterm credit rating from AAA to AA+.
Fitch said the downgrade “reflects the expected fiscal deterioration over the next two or three years, a high and growing general government debt burden, and the erosion of governance.”
The surprise is that, in light of Fitch’s concern about how the Biden administration manages the federal government, the rating agency didn’t downgrade further. Save for the detrimental effect a further downgrade would have on the markets, a bigger lowering is justified.
In a Fitch statement, the agency said: “There has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters. The repeated debt limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”
U.S. debt has surpassed $31 trillion and is expected to reach $52 trillion in 2033. Rising interest rates, as the Fed attempts to cool down inflation, have fueled Fitch’s concerns about the overall debt burden. The prediction of the Congressional Budget Office that the ratio of federal debtto- GDP would nearly double from 98 percent in 2023 to 181 percent in 2053 is a nightmarish worry.
In an alternative but more troubling scenario drafted by the Committee for a Responsible Federal Budget, the debt-to-GDP ratio could soar even higher, hitting 222 percent of GDP by 2053. In the past 17 months, the Federal Reserve has hiked its overnight bank lending rate 11 times. More increases are certain. Analysts predict the obvious – that the U.S. is on a course of “drowning in debt.”
When Fitch refers to “the erosion of governance” – meaning bad governance – surely those who pass judgment on the U.S. debt must have in their minds the wild, imprudent spending spree that the Biden administration immediately embarked on.
A sampling: the “American Rescue Plan,” a $1.9 trillion bill disguised as a COVID-19 relief package; second, the “American Jobs Plan” at $2.3 trillion, falsely advertised as legislation that would upgrade the nation’s infrastructure, and third, the “American Families Plan,” $1.8 trillion in spending that’s vaguely defined as a bill to expand access to education, reduce the cost of child care and support women in the workforce.
In total, the Biden administration has laid out $6 trillion that it doesn’t have for bills with questionable purposes that will produce dubious results, if any.
Also raising eyebrows over at Fitch regarding sound governance must be the White House’s determination to support Ukraine in its endless war against Russia. Ukraine is now the top recipient of U.S. foreign aid, and the White House has poured more than $75 billion into a corrupt country’s coffers without any accountability for how the funds have been disbursed. The consensus opinion is that the war has no end in sight and may drag into 2025, thereby sucking up more U.S. taxpayer money.
Fitch must also interpret the unprecedented Southwest border invasion as poor governance. The arriving migrants are mostly poor, undereducated and therefore likely to become government assistance-dependent.
