Moody’s Downgrade Is Distractive Political Theatre

Yesterday, Moody’s downgraded the U.S. debt for the first time in over a century. That headline is meant to create fear, worry, and concern among everyday Americans, but it is mainly designed to try and incriminate the Trump administration.

The timing of the downgrade, like the analyst who issued it, represents nothing more than poorly executed political theatre. In a statement, the agency said:

“This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.”

The downgrade was from Aaa to Aa1, marking the first time the US lost its perfect credit rating in over a century. The downgrade was primarily due to rising government debt and interest payments,

It should be noted that Moody’s is the same firm that cut the U.S.’s outlook to “negative” during the Biden years, but didn’t downgrade the government’s credit rating. I guess it slipped their minds. After all, the Democrats have held the presidency for 12 out of the last 16 years, but now is the time, Moody’s decided to cut the credit rating—nothing to see here.

A credit rating downgrade suggests that investors perceive a higher risk of default on the debt. This perception can increase borrowing costs for the borrower, as investors require higher returns to offset the added risk.

Moody’s asserts that the downgrade was driven by an anticipated rise in federal deficits over the next decade, primarily caused by increasing entitlement costs, higher interest payments on debt, and inadequate revenue. They projected that deficits will increase from 6.4 percent of GDP in 2024 to nearly 9 percent by 2035.

Political dysfunction has also contributed to the situation. Moody’s states that successive administrations have failed to tackle the debt issue, highlighting “rising political polarization” and a gridlocked Congress. Republicans have been unwilling to consider tax increases, while Democrats have hesitated to cut spending. This has resulted in stalemates over significant budget packages.

Wow, Moody’s has a keen sense of the obvious. Rising political polarization, huh?

Republicans have always hated raising taxes; Democrats never saw a dollar they didn’t want to spend, and both parties want to divert as much as possible into their own pockets.

The U.S. national debt is currently at $36.21 trillion. That figure includes both debt held by the public and intragovernmental debt, and it didn’t reach these levels through sound fiscal financing planning by either party.

Moody’s isn’t exactly enlightening anyone with this debt news, but lowering the credit rating now will only add to, as they put it, … the stalemate on significant budget issues.

This type of political theatre will only impede any progress that could be made during Trump’s administration, which is precisely the point.

Steven Cheung posted a truism on X, stating:

“Mark Zandi, the economist for Moody’s, is an Obama advisor and Clinton donor who has been a Never Trumper since 2016. Nobody takes his “analysis” seriously. He has been proven wrong time and time again.” 

The national debt will always be a political volleyball; Moody’s downgrade is just a spike attempt to hurt Trump, but the shot is clearly out of bounds.