So Much Winning on the Economy Front
Are you tired of the winning yet?
Via the NYT: U.S. Downgraded by Moody’s as Trump Pushes Costly Tax Cuts.
The credit rating of the United States received a potentially costly downgrade on Friday, as the ratings firm Moody’s determined that the government’s rising debt levels stood to grow further if Republicans enact a package of new tax cuts.
The downgrade, to one notch below the highest triple-A rating, amounted to a repudiation of Washington, where President Trump only hours earlier had pushed his party to adopt a legislative package that might add trillions of dollars to the nation’s fiscal imbalance.
The downgrade from Moody’s means that each of the three major credit rating agencies no longer gives the United States its best rating. Fitch downgraded the United States in 2023, citing fiscal concerns, and Standard & Poor’s downgraded the country in 2011
And it is not just some business abstraction:
The new rating decrease could send ripple effects throughout the economy if it prompts investors to demand higher payments on bonds, which in turn could raise consumers’ borrowing costs. So far, though, past downgrades have proved largely symbolic, as the American government’s debt remains the bedrock of the global financial system.
[…]
The prospect of much more government borrowing — when interest rates are already elevated — has made some bond investors nervous. So-called vigilantes in the bond market have been selling the government’s debt as the Republican tax package has wound its way through Congress, contributing to higher yields, which in turn translate to higher interest rates on consumer borrowing.
The 10-year Treasury bond yield has risen roughly 0.3 percentage points this month to around 4.5 percent. The 30-year Treasury yield briefly crossed 5 percent this week; the last time it did that, during some of the worst tariff fears, Mr. Trump cited the bond market among reasons he pared back his tariff proposals.
It’s a sign that the government could end up paying a higher interest rate on its debt if it can’t soothe investors’ concerns over its mounting debt, a development that could snowball into a full-blown debt crisis for the world’s largest economy.
In fairness, this is a long-term issue being exacerbated by the current administration.
Moody’s pointed to decades of gridlock and dysfunction in the nation’s capital. It found that Democrats and Republicans alike had failed to meaningfully curtail U.S. debt, which now towers above $36 trillion.
Nor had the U.S. government addressed myriad well-known, and long-term, financial challenges, Moody’s said, especially the rising costs and persistent underfunding of programs like Social Security and Medicare.
While Moody’s described the U.S. financial system as stable, and found the dollar to be strong and reliable, it also acknowledged the vast policy uncertainty — and it obliquely referred to the ways in which political stability and constitutional order can be “tested at times.”
And we are in one of those times.
I will readily agree that the Congress has been largely unwilling, if not simply unable, to address these issues. But it is also true that we are currently watching a party in power that wants to gut social programs by cutting taxes for the wealthy, all the while adding to the debt.
Moody’s specifically referred to the push to renew the expensive tax cuts adopted under Mr. Trump in 2017, a task that Republicans are now struggling with on Capitol Hill.
I would gladly take the GOP more seriously on the debt if their main agenda wasn’t reckless tax cut proposals.
While one can certainly call out Democrats as well, they aren’t in power at the moment, so what they want is kind of irrelevant at the moment. So I would advise against too much both-sidings in the now.
I will conclude with this: my personal preference is for a set of responsible fiscal policies that would require both cuts and tax increases. I would actually prefer some massive restructuring of certain aspects of the social safety net. For example, there is simply no way the current health care system is anywhere near as efficient in terms of cost as it should be and could be. I agree as a matter of simple fact that current approach is mess that could end in disaster (although my guess is that it just limps along, while hastening to add that the failures of Congress to better govern is part of why we have a Trump presidency in the first place, so maybe the disaster has arrived).
However, if the choice before me is the debt mess we have had and Party A, which wants to add to the debt to fuel tax cuts for very wealth people or Party B which wants to add to the debt to provide services for the not wealthy, I am going with the Party B option.
I realize that this is a simplification, but it is not inaccurate. I wish the choices were a bit more complex than they are, but such is American politics.
I wonder if the failure of the Big Beautiful economic bill happened before or after this action by Moody. I would guess before because I think Moody deliberated for some time first; in that event credit them for prescience.
As I said yesterday, at least Trump put Swift and Springsteen in their place.
Tangentially related;
Trump claims to have brought $14T in new investment to the US since Jan. 20.
The US GDP in Q1 was $23.5T. So Trump says he has brought in over 1/2 that amount.
Huge if true, as they say.
He also claims to have brought in $4T just on this last pilgrimage to the ME, with $1.2T from Qatar alone. Qatar’s annual GDP is a bit less than $250 billion per year. So apparently every dollar made by every person in Qatar, for the next five years, is going to be invested in the US.
Spoiler alert – more than Trump’s diaper is full of shit.
Trump told Walmart to “eat the tariffs” and that he’ll be watching to make sure they don’t raise their prices.
@Slugger:
Moody’s basically made the decision to do this more than a year ago when they changed the US ratings outlook from stable to negative on November 10, 2023:
https://ratings.moodys.com/ratings-news/411110
The actual lowering was just carrying out what they said they were going to do back then.
Remember drill, baby, drill? Remember how one of our trolls – the world’s greatest businessman – laughed at me when I said I doubted we’d be seeing much investment in drilling?
World’s Greatest Businessman vs. Kid book author who will freely admit to knowing pretty much nothing about finance, and the latter wins. A total victory. I’d go so far as to say, WGB has suffered a crushing defeat.
Worth remembering about MAGAs and Republicans in general: they don’t know WTF they’re talking about, they never did, they never will because ravenous greed is not a rational state of mind that enables analysis.
@CSK:
“Trump told Walmart to “eat the tariffs” and that he’ll be watching to make sure they don’t raise their prices.”
But Trump promised that only foreigners will pay the tariffs, right?
I agree, though I don’t see a solution to that problem that does not involve remaking the whole system.
In the meantime, it’s well past time to increase taxes on corporations and the wealthy. I’d favor a wealth tax of 2% for a net worth over 1 billion, increasing ten basis points (0.1%) per billion until it hits 100%.
this allows all those poor, sensitive, snowflake billionaires to remain billionaires, but would return a lot of that money to the economy.
It would also destroy the notion of share value as supreme. A lot of the wealth the oligarchs posses is kind of theoretical, namely how much their stock portfolios are worth. they’d rush to reduce share values to reduce net worth to reduce the tax they should pay. Economics is all about incentives.
It will never, ever happen.
@Moosebreath:
As far as I can recall.
To be fair, Party B would happily increase taxes on the wealthy in order to provide those services without adding to the debt. Americans are sufficiently stupid/brainwashed that saying this out loud would guarantee no electoral wins for Party B.
Steven: “I would gladly take the GOP more seriously on the debt if their main agenda wasn’t reckless tax cut proposals.”
Steven, this started during the Reagan Administration. It’s been. GOP pattern for forty years.
And still the press treats the GOP as the Party of Responsibility.
@Barry: While the GOP has long tarred the Democrats as the party of tax and spend, for decades they have made themselves the party of borrow and spend.
@Barry:
I agree that the current era grows directly out of Reagan, and there is a lot to criticize there. And I will even confess to having bought into a lot of it at the time.
But, this is not a defense as much as simply an assertion of fact: Reagan also signed tax increases into law. GHW Bush signed a tax increase as part of a budget deal(which got him in trouble after the “read my lips” pledge).
There used to be more room to maneuver on this topic, although yes, I agree, the party has never taken deficits and the debt as seriously as they claim.
But the move to tax cut only as their policy position, which grew out of the 80s, is really a post-GHW Bush thing driven by Gingrich and his descendants.
@CSK: Odd statement by the President since he’s assured us that China pays the tariffs. Perhaps his phone autocorrected China to Walmart right before he clicked post?!?!