Who Caused the US To Lose Its Perfect Credit Rating?

If there is a way in which Democratic and Republican administrations in the United States resemble each other, it is that they both get angry — very angry — with the financial messengers, such as the ratings firms, when those firms advise them that something is not good.

This past weekend, it was Moody’s turn to put the credit rating of U.S. debt in a negative perspective. Moody’s maintained the highest AAA level but with the door open for downgrades. This was as opposed to Fitch Ratings, which this past summer cut its perfect rating on U.S. debt from AAA to AA+.

And this is not to mention Standard and Poor’s, which, starting in 2011, dared for the first time in history to downgrade the perfect grade for U.S. debt from the top level of AAA to the still enviable, but not perfect, AA+. On that occasion, Barack Obama, then the U.S. president, was very unhappy with S&P’s decision to downgrade the debt rating. He said that, independent of the rise and fall of the markets, his country would always be triple-A.

And the Republicans have been taking advantage of this situation to slam the Democratic administration, when to a great extent all of this subprime crisis which has cost that economy its perfect rating was manufactured by the Republicans.

It may be a coincidence, but four years after the downgrade, Standard and Poor’s was hit with an historic fine of $1.375 billion, accused of manipulating securities backed by these subprime mortgages.

Well, now that Moody’s is targeting that same debt, Joe Biden’s Treasury Department is upset with the decision. It argues that the U.S. economy is strong, and that U.S. Treasuries are the world’s primary safe and liquid asset. That is true, but it is clear that this preferred haven of the world’s financial markets is not perfect.

It is of interest why the world’s biggest economy, with the most envied financial haven on the planet, cannot maintain the perfect score that Fitch Ratings gave it last August when it downgraded its rating of that debt.

What is certain is that Fitch’s decision also angered Treasury Secretary Janet Yellen, who said that the downgrade was a product of an incorrect assessment based on out-of-date data.

The point is that Fitch summed up the problem in one word: governance. The inability to reach basic agreements between the two parties in Congress results in stalled negotiations that almost reach the time limit to avoid paralyzing the government. There are more ambitions here than there are agreements, which has made the U.S. government come close to default.

It is highly debatable whether the U.S. got to this point because of the way Republican Donald Trump continues to polarize the life of a nation accustomed to functioning through its institutions, or if it is rather through the inability of the Democrats to repair all that the populist former president shattered when he was in power.

What is certain is that in the view of the world’s three principal credit rating agencies, the U.S. does not deserve to have a perfect credit rating, even though that makes the White House angry.