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The U.S. is now unmatched in a regrettable category. Among rich and spend-happy nations that are globally seen as safe investments, the U.S. beats out the competition when it comes to the size of its debt burden, as the nation\u2019s public liabilities have exceeded the size of its economy for the first time since World War II.\u00a0<\/p>\n
On Thursday, the nonpartisan watchdog Committee for a Responsible Federal Budget (CRFB) announced that U.S. debt held by the public, estimated to be $31.27 trillion, officially surpassed the country\u2019s annual GDP of $31.22 trillion in March, basing its analysis on new data released this week by the Bureau of Economic Analysis.<\/p>\n
Rising debt comes with a long list of economic risks, including the threat that the cost of servicing that debt might crowd out other essential government spending. Another consequence would be a deterioration of the country\u2019s once-top tier credit rating, a scenario that could lead to higher borrowing costs and even more constrained government spending. After the CRFB\u2019s announcement, one of the world\u2019s foremost rate-setters warned how close that scenario is to becoming reality.<\/p>\n
The U.S.\u2019s credit rating\u2014a measure of a country\u2019s creditworthiness and expected ability to repay debt\u2014risks slipping due to its high debt burden, analysts from Fitch Ratings, a rating agency, warned in a report Thursday. Fitch currently maintains the U.S. at a AA+ rating, having downgraded it from its premier AAA rating in 2023 due to continued political run-ins over the U.S. debt ceiling that repeatedly risked sparking a default on debt.<\/p>\n
\u201cStructurally large fiscal deficits will keep the U.S.\u2019s debt burden far above that of other \u2018AA\u2019 category sovereigns,\u201d the analysts wrote.<\/p>\n
The U.S. remains in AA territory largely thanks to the dollar\u2019s reserve?currency status, its deep capital markets, and continued prospects pointing at long?term growth. But the analysts warned that years of fiscal malpractice were a growing constraint on the rating.\u00a0<\/p>\n
\u201cThe U.S.\u2019s \u2018AA+\u2019\/Stable rating already incorporates a long-running deterioration in governance, particularly in fiscal policymaking,\u201c analysts wrote.\u00a0<\/p>\n
Fitch projected a general government deficit amounting to 7.9% of GDP this year and in 2027, largely due to deep tax cuts implemented by the Trump administration\u2019s One Big Beautiful Bill Act and uncertainty as to whether tariff revenues will be able to plug the hole. The CRFB has previously estimated that President Donald Trump\u2019s signature policy package will add $4.7 trillion to national debt through 2035. Tariffs were expected to plug the debt gap somewhat, but the Supreme Court\u2019s landmark ruling against the bulk of Trump\u2019s tariffs earlier this year could strip the government of $1.7 trillion through 2036, according to the CRFB, which could help place the U.S. on a trajectory of $58 trillion in debt over the next decade.<\/p>\n
The country\u2019s deteriorating credit rating comes with real implications for the economy. The importance of a strong credit rating is less about the letter grade itself than what it underpins: low borrowing costs for the federal government, which in turn keeps yields and rates lower across the economy.\u00a0<\/p>\n
As long as the U.S. can borrow cheaply, the cost of home mortgages, business loans, and corporate bonds tends to stay lower than it would in a country with weaker credit standing. A loss of premier rating status\u2014or a slide into a less reliable tier\u2014would raise the premium investors demand, translating into higher interest payments on the national debt and higher borrowing costs for households.<\/p>\n
Fitch isn\u2019t the only agency to have raised concerns about U.S. creditworthiness. Last year, Moody\u2019s downgraded the U.S. from Aaa to Aa1. Aaa is reserved for the highest class of credit, with investors enjoying minimal risk. Wealthy nations including Canada, Australia, and several countries in the EU have this classification. Countries with an Aa1 rating are still considered to have a very low credit risk, but are seen as less stable and more vulnerable to change. Both Moody\u2019s and Fitch\u2019s rating systems are functionally the same.<\/p>\n
Moody\u2019s cited growing fiscal deficits and rising interest costs as reasons for the downgrade, a situation the agency did not expect to resolve quickly.<\/p>\n
\u201cOver the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat,\u201d Moody\u2019s analysts wrote. \u201cIn turn, persistent, large fiscal deficits will drive the government\u2019s debt and interest burden higher. The U.S.\u2019s fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.\u201d<\/p>\n<\/div>\n
#debt #exceeds #GDP #time #Fitch #warns #credit #rating #fall<\/p>\n","protected":false},"excerpt":{"rendered":"
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