May
2025
Uncle Sam’s not AAA any more
DIY Investor
19 May 2025
Lale Akoner, global market analyst at eToro says: “Moody’s just pulled the US’s final AAA rating, citing ballooning debt, a $2T+ annual deficit, and political gridlock over taxes and spending. But for many in the market, this was already priced in. The 27-year era of fiscal stimulus ended in 2023, and net interest payments have quietly climbed to 18% of tax revenues, far above historic norms. It is clear that tariffs and paying for tax cut extensions are signs that a new period of austerity has arrived.
“The irony? Moody’s might be late to the party. In 2011, S&P downgraded the U.S. after Congress passed $2T in cuts. Bond yields fell. Now, Moody’s is flagging deficits tied to tax cut extensions that haven’t even passed while ignoring Trump’s tariffs, which function as a $2T consumption tax that actually supports revenue. Tariffs hurt growth, but they help the Treasury: a trade-off the market seems to understand better than the rating agencies. Investor Takeaway: The downgrade reflects what markets already know: we’re in a new fiscal regime defined by austerity via tariffs and caps, not stimulus. Keep an eye on Treasury yields and fiscal negotiations but don’t overreact to the downgrade itself. History shows these calls often lag the fundamentals.”
Leave a Reply
You must be logged in to post a comment.