US Gets Downgraded

Adding to the already existing pressures, as if the market needed any more, Fitch has downgraded US Government debt to AA+, from AAA.

The USA is losing its long held safe credit mantle. This is long overdue. Credit agencies are notorious for being slow to act. More may follow. It is simply irresponsible to suggest the USA is a triple A credit.

US Debt/GDP Ratio

At AA+, this is still a very generous appraisal for a government which is keenly allowing debt to balloon at an alarming pace. Debt to GDP is likely already well over 130%, but we just haven’t got the data yet. This is a catastrophe. Especially, when the nation involved is continuing to borrow and spend like there is no tomorrow.

The huge leap in government spending on the advent and excuse of Covid, has not been would back? Instead, debt spending is continuing to grow.

There is no end in sight to the deterioration in the US fiscal position. Now with interest rates alarmingly higher, things are only going to get worse. And quickly.

Interest rates are indeed still going higher. We have been bullish the 10 year bond yield for the past two years. After a momentary reprieve on the basis of the Fed’s last rate hike, yields are again on the march higher.

Borrowing costs are going to continue to rise in the private sector for everyone, and this means further mortgage and other borrowing stress ahead for consumers and businesses.

The economic slowing we have been telegraphing is only going to intensify.

The stock market finally gave up the post last rate hike hopes and has finally broken down as we have so steadfastly been warning.

The real concern everyone should be holding right now is that this may only be the first baby step lower in what may well become a sustained down-trend.

Clifford BennettACY Securities Chief Economist

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