Moody's Downgrades U.S. Credit Rating: Understanding the Impact

Moody's Downgrade of U.S. Credit Rating

• 📌 Moody's has downgraded the U.S. sovereign credit rating from AAA to AA1, making it the last of the major credit rating agencies to do so.
• 📉 The agency cited ongoing budget deficits and the trillions of dollars in new debt expected from Republican tax cuts as reasons for the downgrade.
• 📊 In 2023, S&P also downgraded the U.S. rating, while Fitch did so in 2011.

Impact of Credit Rating Downgrades

• 📈 These downgrades are significant because they affect the cost of borrowing money, essentially driving up interest rates.
• 💰 This means the U.S. has to spend more to borrow money, with current interest payments on $36 trillion in debt exceeding defense spending.
• 💸 Nearly $900 million a year in taxpayer funds are now allocated solely to interest payments.

Republican Tax Cuts and Economic Impact

• 💸 The Trump administration claims GOP tax cuts will pay for themselves, a concept known as trickle-down economics.
• 📉 Economists, however, state there is no evidence that trickle-down economics works.
• 📊 During the first Trump administration, after tax cuts, businesses primarily bought back their own stock to drive up share prices, rather than investing back into the economy.

The "Big Beautiful" Spending Bill

• ⚠️ According to The Wall Street Journal, the proposed spending bill does not reduce deficits and will further increase debt.
• 📈 The government is reportedly on track to borrow an additional $21 trillion.