Moody’s Investor Service has recently lowered the credit rating of the United States from Aaa to Aa1, marking a significant shift in the nation’s financial standing. This downgrade is attributed to persistent fiscal deficits and the escalating government debt that has developed over more than a decade. Following in the footsteps of other credit rating agencies like Fitch Ratings and S&P Global Ratings, Moody’s expressed concerns regarding the rising levels of US debt and interest payments.
A statement from Moody’s indicated that while the agency recognises the US’s notable economic strengths, these advantages are waning against the backdrop of deteriorating fiscal metrics. The increasing debt levels have raised alarm among analysts, prompting this one-notch downgrade on the agency’s 21-notch scale.
US federal debt has surged notably due to ongoing fiscal deficits. A Moody’s representative elaborated that “this one-notch downgrade reflects the significant rise in debt and interest payment ratios surpassing those of comparably rated sovereigns.” Nonetheless, the agency maintains optimism about America’s long-term financial health.
In response to the downgrade, Steven Cheung, a spokesperson for former President Trump, vehemently opposed the downgrade, questioning the credibility of Mark Zandi, the economist behind Moody’s analysis. Cheung described Zandi’s evaluations as consistently flawed, stating, “Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again.”
While stock markets historically tend to react unfavourably to such downgrades, an interesting counter-narrative unfolded in the cryptocurrency market. Bitcoin (BTC) defied the trend, rallying over the weekend to exceed US$105,000 (approximately AU$163,600), nearing its all-time high of US$109,114 (around AU$170,076). Over the past 24 hours, Bitcoin saw an uptick of 1.25%, with XRP rising by 0.5%. Meanwhile, Ethereum (ETH) and other cryptocurrencies posted slight declines.
Interestingly, the reaction to Moody’s downgrade has sparked varied reactions among financial analysts. Some analysts, such as Jima Bianco, have dismissed the significance of the downgrade, labelling it a “nothing burger.” In contrast, Gabor Gurbacs, CEO of crypto loyalty rewards company Pointsville, critiqued Moody’s assessment as overly optimistic and unrealistic, referencing the agency’s past failures during the 2007-2008 financial crisis when it granted Aaa ratings to sub-prime mortgage-backed securities.
Overall, the downgrade by Moody’s serves as a stark reminder of the ongoing challenges faced by the US economy, particularly concerning rising debt and fiscal responsibility. However, the resilience of Bitcoin amid this news underscores the evolving dynamics within both traditional and digital financial markets, as investors continue to navigate a landscape marked by uncertainty and instability.
