After Standard & Poor’s in 2011, it is the turn of the rating agency Fitch to downgrade the sovereign debt rating of the United States.
From AAA to AA+
The New York rating agency justified itself by pointing “the expected deterioration of public finances over the next three years, the high and growing burden of general government debt and the erosion of governance”.
On the issue of governance, Fitch observes a continuous deterioration over the past 20 years, including on taxation and debt:
“Repeated political deadlock over the debt limit and last-minute resolutions have eroded confidence in fiscal management. »
This is despite June’s bipartisan agreement to suspend the debt ceiling until January 2025.
Fitch did not hesitate to speak of the unsaid par excellence either. Namely the unfunded expenses related to the increase in the costs of social security and health insurance due to the aging of the population.
Indeed, as we wrote in this article:
“In July 2023, the official US federal government debt figure was $32.6 trillion.
That’s $97,261 for every American. Or $248,403 per family.
To which is added the private debt of households of 19,000 billion dollars. That gives us $154,000 in debt per American of any age.
We could still add corporate debt and the roughly $100 trillion that the US government will have to borrow to meet its pension commitments, health insurance, and so on. »
It’s very simple, the total debt of the American nation represents 1/3 of the world debt…
Debt gone exponentially
Fitch forecasts that the deficit will reach 6.3% of GDP in 2023, compared to 3.7% in 2022. Not least due to a higher interest burden. The latter have indeed almost doubled since the FED raised the cost of money:
The ratio of interest on debt to government revenue is expected to reach 10% by 2025. Clearly, 10% of revenue is directly engulfed in debt servicing. Which is much higher than the median of AA-rated countries (3%) and the AAA median (1%).
For the rating agency, the public debt/GDP ratio will reach more than 118% in 2025. Knowing that we are only talking about the federal debt here. There is also a debt specific to each of the 50 American states…
“This ratio is more than two and a half times higher than the “AAA” median (39% of GDP) and the “AA” median (45% of GDP)”points out Fitch.
Clearly, the United States gets preferential treatment. The reason being its monetary hegemony:
“The US dollar is the world’s primary reserve currency, giving the government extraordinary funding flexibility. »
Unfortunately for Uncle Sam, this exorbitant privilege is eroding day by day. And unless we emerge victorious from a third world war, it is hard to see how the trend could be reversed.
Even Lary Fink, the CEO of the largest American investment fund (BlackRock), now believes that bitcoin is an “international asset” to protect against inflation and the devaluation of all currencies.
Which is the definition of a good international reserve currency. Unlike the dollar which is backed by debt sporting a dangerously exponential trajectory.
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