A US economy warning has been issued by an expert, with Treasuries “no longer safe” following Moody’s change in the outlook of Biden’s government from “stable” to “negative”
The rating agency downgraded the president’s government on Friday, saying the US’s fiscal deficits are expected to remain very large meaning debt affordability will weaken significantly.
Moody’s maintained the US’s AAA rating but warned this may be cut.
The agency, which provides risk assessment services for large firms and organisations, warned “continued political polarisation” in the US government poses a risk as Congress “will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability”.
WATCH HERE: EJ Antoni gives his take on US economic growth
Issuing a warning for consumers over the situation, research fellow and public finance economist at the Heritage Foundation, EJ Antoni, argued that an “explosion of household debt and higher interest rates have drastically raised families’ borrowing costs”.
“The American consumer is hitting a wall,” Antoni said.
“After accumulating over $1trillion in credit card debt and depleting trillions of dollars in savings, many families have no room left in their budgets.
“They’re pulling back their spending to cope with the cost-of-living crisis.
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Moody’s maintained the US’s AAA rating but warned this may be cut.
Reuters
“Runaway federal spending, including on pet-projects like ‘green’ energy programs, has made multi-trillion-dollar deficits a structural problem for the US and fueled inflation.
“Prices have risen so much faster than earnings that the typical American family has lost almost $5,400 in annual purchasing power under the Biden administration, leaving less money for discretionary spending.
“The explosion of household debt and higher interest rates have also drastically increased families’ borrowing costs, by about $2,000 since Biden took office.
“Combined with the losses from inflation, it’s the equivalent to a family in January 2021 taking about a $7,400 cut in their annual income.”
It comes as another potential shutdown of the federal government draws near with just a single week for Republicans and Democrats to reach a breakthrough on funding.
It comes as another potential shutdown of the federal government draws near with just a single week for Republicans and Democrats to reach a breakthrough on funding
Reuters
Should they fail to approve a stop-gap, services offered by the government will end or be severely limited.
Biden’s administration said it disagreed with Moody’s decision to downgrade its rating.
However, the decision followed two other major agencies (Fitch and Standard & Poor) also downgrading their ratings.
According to the October Treasury statement, gross interest on US debt was $89billion, which Antoni equated to 40 per cent of all income taxes collected.
“It’s no wonder they’re cutting back spending – they have no choice,” Antoni continued.
“Investors are waking up to the reality that the federal government will one day be unable to pay its bills, and that day will come sooner than previously thought.
“It can either skip bond payments or implicitly default by inflating away its debt, which is what it has done under Biden.
“Bondholders are receiving dollars worth just 83 cents, compared to what they originally lent.
“It’s like Biden’s Treasury Department decided to repay only 83 per cent of what they promised.
“The question is not why Moody’s downgraded the outlook on US debt, but why Moody’s hasn’t already downgraded the debt itself.
“If the last three years have taught us anything, it’s that US Treasuries are no longer ‘safe’.”
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
