US Credit Rating Downgraded - Nothing to Worry
[Surprised] [Surprised] [Surprised] [Surprised] [Surprised] [Surprised]
The downgrade was influenced by multiple factors. One of these factors was the government's failure to control expenditure, resulting in the need to raise the debt limit multiple times. This trend has eroded confidence in the government's fiscal responsibility.
Additionally, a significant contributing factor was the increasing government deficits. Fitch foresees these deficits continuing to expand over the next two years. The rising expenses are primarily driven by the aging population, leading to increased healthcare costs for the elderly. Regrettably, there has been a lack of fiscal policy reforms to address this issue.
Furthermore, Fitch predicts that the US may experience a mild recession in the fourth quarter of 2023 and the first quarter of 2024. This economic downturn could subsequently reduce the government's tax revenue, leading to a wider deficit.
The US government is issuing more debts to cover its deficits, and with the added burden of higher interest rates, the interest payments alone have surged to nearly one trillion dollars per year!
You might wonder why. This is not the first time the US credit rating has been downgraded. Back in 2011, S&P was the first to downgrade it. Stocks fell but surprisingly bond prices did not decline. On the contrary, bond yields actually decreased and bond prices rose.
Furthermore, it's essential to recognize that this downgrade only represents a shift to the next level, and US bonds are still categorized as investment grade. The impact is primarily psychological rather than a substantial blow to the credibility of the US government.
In the event that Moody's, the last credit rating agency among the Big 3, also decides to downgrade the US, I believe it would have limited impact. S&P's previous downgrade already set a precedent twelve years ago and the market has accept a AA+ rating. Nothing has changed even with a Fitch downgrade now. Despite S&P's earlier downgrade, the US has maintained strong economic performance and has consistently paid its debts throughout this period.
Thus, as long as the US remains the superpower in the world and that the USD serves as the world's currency, the US will do just fine.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
