Washington Examiner

Moody’s downgrade reminds us of US fiscal challenges.

Moody’s Warning Highlights Perilous Fiscal Situation in the United States

Moody’s⁣ decision to cut its ratings outlook for the United States to ⁢negative is yet another warning of the country’s perilous fiscal footing, ⁤even if not an‌ immediate threat to ⁢the‌ economy.

Moody’s Investor Services is the last ratings agency to give the U.S. its top rating: AAA. Both Fitch Ratings⁢ and S&P Global Ratings​ have already ⁤dropped the​ U.S. below their top threshold, and while​ Moody’s held off ⁣doing so, the ​negative outlook ⁤raises the odds that it ⁤could end up following​ suit.

Concerns Mount Over ⁣Fiscal Challenges

Maya MacGuineas, president of the‍ Committee ‍for a Responsible ‌Federal Budget, ‍said the most recent outlook downgrade isn’t surprising given the soaring​ federal⁣ debt ‌and trouble dealing with‌ budget deficits.

“Anybody who is⁤ paying attention will know that we are on‍ a fiscally unsustainable path and that⁢ our lawmakers are doing an abysmal ⁢job of addressing it,” she told the Washington ⁣Examiner. “It makes sense,​ whether it’s a downgrade ​or a lower watch — ​this ⁣reflects where we are as we govern from crisis to crisis.”

MacGuineas said the‌ outlook downgrade isn’t ‍likely to have a major effect on interest‍ rates, ‌given​ how many​ other factors are at play. She said, though, ⁣that the move “is more of a reminder … that ‌the interest rate situation is going⁣ to get worse and lead​ to higher interest payments if we ⁤don’t ‍do⁢ something about the underlying fiscal challenges.”

The country is dealing ​with nearly $33 trillion in national debt, a number that is only set to increase in‌ the coming years and⁢ decades. ⁢Additionally,⁤ the⁤ federal budget deficit ticked ⁢up to $1.7 trillion for fiscal 2023, which⁣ ended in September, the Treasury‌ Department announced.

Adding to concerns about the country’s ‍fiscal standing is that automatic cuts to Social Security are estimated to come in 2035 ​unless something is done⁤ to shore up its trust fund, and the Medicare Hospital Trust Fund ⁢is expected to be exhausted between ⁢2028⁣ and 2031.

Political Paralysis and Rising Debts

In⁣ announcing the downgrade, Moody’s⁣ cited ⁣the current ⁢hole ⁣the U.S. finds​ itself in. It ​also ‍noted ‌that despite the looming deadlines and rising debts, Congress has been seemingly paralyzed by partisan bickering and disagreement on a‌ course of action, ‍particularly as higher‍ interest rates⁤ make the situation all the more ‍precarious.

“In the context ⁤of higher interest rates,‍ without effective fiscal policy measures to reduce‌ government ​spending or increase revenues, Moody’s ⁢expects that the U.S.’ fiscal deficits ​will ‍remain very large, significantly weakening debt affordability,” Moody’s‍ said in a⁤ statement. “Continued political polarization within U.S. ⁢Congress raises the risk ‍that successive governments will not be ⁢able to ⁣reach consensus on a ⁣fiscal plan to slow ⁣the decline in debt affordability.”

Mark Hamrick, Bankrate’s senior economic analyst, told the Washington Examiner that ⁢the Moody’s outlook ⁢downgrade is‌ an “acknowledgement ‍and a ⁣recognition” ‍of how the divided Congress and tense political situation makes meaningful‌ work⁣ on the country’s fiscal problems so difficult.

“It shouldn’t surprise anybody that this has happened, and it’s not really consequential in and ‌of ‌itself for the markets, but it is sort‍ of⁣ writing ⁢a ​warning ticket to the elected ⁣officials, and ultimately ​by extension, to the American public” that there ⁤are consequences ​for the inability to⁣ manage fiscal issues ⁢in a way consistent ⁣with regular ⁣order, he said.

Efforts ‍to Address the Fiscal Crisis

But lawmakers ⁤have taken tentative ‌steps in recent days to improve the country’s fiscal situation. New House Speaker ⁢Mike⁤ Johnson (R-LA) ⁤used his first floor speech as leader of the House to urge ⁣the ⁣adoption⁣ of a bipartisan ‌fiscal⁢ commission tasked with making a plan to fix the ​country’s debt.

And then last week, Sen. Mitt Romney (R-UT) and Sen. Joe Manchin (D-WV), alongside a cast of other Republicans and Democrats, proposed ⁢legislation that would create such a bipartisan and bicameral commission.

The​ commission would work to produce a report and propose legislation that would stabilize the ratio⁣ of public debt ‍to gross domestic product within ⁤a 15-year time frame and improve solvency of federal ⁤trust funds, such as those for Social Security and Medicare, over a 75-year time frame.

“I think that is ​the best idea ⁣out there. … It is important because⁣ it provides political cover at a time where there is not a lot of political courage,” MacGuineas said.

“I think it makes a ton of sense; it’s‌ not guaranteed to succeed, but it’s probably the best ⁤chance​ there is​ right now, especially ​if⁤ an ⁣emergency ⁢comes along. It would be good‍ to know ‍that people are working on this,” she added.

The downgraded outlook ‍was‌ more bad news for President Joe ⁤Biden, who has consistently ⁤gotten low‍ approval ratings on his handling of the economy despite a major push from the White House ⁢to emphasize the bright spots in ⁢the economy as “Bidenomics” at work. The Treasury Department said after the downgrade that it⁤ didn’t agree ⁤with ‌the move.

“While the statement by Moody’s maintains the United States’‍ Aaa rating, we disagree with the shift to a negative outlook. The American economy remains⁢ strong,⁢ and Treasury securities are the world’s preeminent safe⁢ and liquid​ asset,” said Deputy Treasury Secretary‌ Wally Adeyemo in a statement.

Rep. Jodey Arrington (R-TX), ​the Budget‌ Committee chairman, said‌ in Monday ⁤statement after the outlook downgrade that the U.S. is “barreling​ towards a debt-related economic crisis.”

There ‍have been other warning ⁤signs this year ‍as well. In August, Fitch announced that America’s AAA rating would‍ be downgraded⁢ to AA+ following this year’s debt limit fight.

While Moody’s reaffirmed its AAA rating for the U.S. in announcing the‌ outlook ⁢downgrade, Hamrick said that righting the fiscal‍ ship becomes even more fractious during an election year.

CLICK HERE TO READ ⁣MORE FROM THE WASHINGTON EXAMINER

What is the significance of the ⁤proposed legislation⁤ in addressing the fiscal crisis in programs such as Social Security and Medicare?

In programs such as Social Security and Medicare. The proposed legislation has garnered​ support from both sides‍ of the aisle, signaling⁤ a ⁤potential willingness to address the fiscal crisis.

However,‌ the path forward is still uncertain. The current political climate, characterized by partisan bickering​ and polarization, poses a significant obstacle to effective​ fiscal policy measures. Without a⁢ consensus on a fiscal plan, the‌ decline in debt‌ affordability is likely to continue,⁤ putting‍ the country at even greater risk.

The Moody’s outlook downgrade⁣ serves as a wake-up call to both elected officials and the American public. It highlights the⁢ consequences of political paralysis and⁣ warns of the worsening interest rate situation and its ⁣impact on higher interest payments. The need to address the‍ underlying fiscal challenges becomes more urgent with⁤ each passing day.

Addressing the fiscal crisis requires proactive​ and decisive ⁤action. Lawmakers must come ‌together to find common ​ground and‌ develop a comprehensive plan to⁤ reduce government spending and increase revenues. Furthermore, a bipartisan and bicameral commission, as proposed by Sen. Romney and‍ Sen. Manchin, could provide a structured​ approach ⁢to tackling the ⁣issue.

With nearly $33 trillion in national debt and mounting budget deficits, the United States is standing ⁣on precarious fiscal footing. The long-term viability of programs like​ Social Security ‍and Medicare is ⁣also in question unless steps‌ are taken to secure their ​trust funds. Failure to address these challenges will lead to dire consequences for the economy and future generations.

Ultimately, the Moody’s warning serves as a stark reminder that the United States cannot afford to ignore its perilous fiscal situation. It is a call ⁤to action for lawmakers to put aside partisan differences and prioritize the long-term financial‍ health of the country. The time for decisive action is now, before the ‌fiscal crisis becomes an irreversible catastrophe.



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