Moody Trump throws a curved ball

Open the newsletter to watch the White House for free

Your guide to what the second period of Trump means to Washington, business and the world

The writer is the president of Credit International Corp and former Vice President at S&P Latin American debt crisis

Donald Trump has just received a doubtful discrimination: for the first time in more than a century, the United States does not maintain AAA credit classification from any major agency. MOODY reduction in the United States to AA1 last week stripped its last triple country.

In the aftermath of the historical reduction of the S&P Global Ratses in 2011 and a similar reduction in Fitch in 2023, MOODY decision submits an undesirable ruling on American financial affairs – and it directly lands on President Trump’s threshold.

Each of the “big three” categories stems from the same basic issue: chronic financial mismanagement driven by political paralysis. The S&P reduction in 2011 came after a bitter battle in the roof of the debt and the plan to reduce the deficit it considered insufficient, amid intense political polarization and the absence of reliable reform.

Fitch’s work in 2023 warned of a fixed deterioration in American governance and the edge of the permanent edge to reduce debt. Moody’s now adds that despite a decade of increased debt and constant deficit, Washington has a limited budget flexibility. The spending on entitlement is climbing, delayed tax revenues, and none of the parties is ready for settlement. Agency’s message is clear: Partisan inertia in America and uncertainty in politics has dangerous financial consequences.

Previous discounts failed to intimidate investors – in 2011, the cabinet increased contrary to the S&P reduction, and the Fitch 2023 step had no permanent impact on the returns of American bonds.

This time, we have seen a leap in revenue on US Treasury bonds for 30 years to more than 5 percent, as they made their climax in the last peak during the doubtful “liberation day” operations of Trump.

As long as the United States government continues to honor its obligations, the cabinet debts will retain its almost as a “risk -free” standard. All three agencies are currently devoted to a straight view of the United States, which does not indicate any other immediate discounts. But Moody’s warned that if debt or governance standards deteriorate further, there will be another classification reduction. In short, the White House is on a hook to prevent a more clear decrease in creditworthiness.

Politically, Moody’s referee intensified the blame game in Washington. Democrats claim that their warnings about Trump’s financial policies-the Democratic Leader of the Senate Chuck Schumer called it a call to wake up “to stop the” tax gift to deceive Republicans. ” Republicans repeat that excessive spending – not tax cuts – is the real perpetrator, and some refuse to reduce as an exaggerated reaction by classification agencies.

It is a display of the previous confrontation. After the 2011 S&P reduction, each political side referred to fingers. The Obama administration also filed a lawsuit against the S&P in 2013 due to its mistakes during the financial crisis, which led to the payment of $ 1.5 billion by the credit agency to settle cases. After reducing the Fitch classification for 2023, Biden officials exploded this step as “arbitrary”.

The uncomfortable truth is that both parties have a hand in the prosperous debts of America, yet it does not support a permanent solution. “During more than a decade, the US federal debts increased sharply due to the ongoing financial deficit,” Moody’s said in reducing his classification.

Structural imbalance – firm polarization and permanent immunization – makes serious financial repair almost impossible. The functional defect continues. Without a large deal from the two parties on spending and revenues, the nation’s financial path will get worse, regardless of who occupies the oval office.

One of the great reasons for the incomplete borrowing is the role of the dollar, which is unparalleled as the backup currency in the world. But the share of international reserves held in dollars has decreased from nearly 80 percent in the 1970s to less than 60 percent. Moodyz admits that the domination of the dollar as a reserve asset gives us unusual financial flexibility.

Even after the past discounts, global investors continued to buy US debt, and in an effort to obtain their safety, which confirms that there is still an important alternative to the depth of the American treasury and liquidity. But this pillow is neither guaranteed nor forever. Each roof of debt scares and all credit warning chips on confidence in American supervision.

The loss of AAA’s condition in all fields is a symbolic blow to the American prestige. Washington should motivate its financial house before believing in dollars – and the financial exception to the nation – is eroded seriously.