The is the reality the United States is facing.
May 21 (King World News) – Gerald Celente: On 16 May, Moody’s Ratings became the last of the three major credit rating agencies to lower its estimate of the U.S. government’s creditworthiness.
Moody’s dropped its rating from Aaa to Aa1, citing years of failure by presidents and the U.S. Congress to rein back the ballooning national debt. It also cited the growing interest burden the treasury must pay and the risk to the nation’s standing as the world’s most attractive destination for investment.
In November 2023, the agency dropped its U.S. rating outlook to negative. With the downgrade, it now sees the outlook as “stable.”
Fitch Ratings and Standard & Poor’s already had diminished their ratings to Aa1.
“While we recognize the U.S.’s significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics,” Moody’s said in a statement announcing the downgrade.
The yields for treasury securities ticked up on the news, with the return on the 10-year note rising as high as 4.49 percent.
“The downgrade may indicate that investors will demand higher yields on Treasuries,” portfolio manager Tracy Chen at Brandywine Global Investment Management wrote in a note to clients.
Although dollar-based assets rallied after Fitch and S&P’s downgrades, “it remains to be seen whether the market reacts differently as the haven nature of treasury and the U.S. dollar might be somewhat uncertain,” she added.
The annual federal budget deficit is currently around $2 trillion a year, meaning that nearly a third of last year’s $6.8-trillion outlay was borrowed. The deficit is roughly 6.4 percent of GDP, while the total national debt is about 102 percent of the annual GDP.
Congress is currently haggling over a combination tax-cut and spending bill that could add $3.8 trillion to U.S. debt over the next 10 years, according to Congress’s bipartisan Joint Committee on Taxation.
Moody’s expressed skepticism over the ability of Congress to enact a meaningful debt reduction plan.
In May, U.S. Treasury Secretary Scott Bessent testified to Congress that U.S. debt is increasingly unsustainable. “The debt numbers are indeed scary,” he said. A sudden financial crisis could spark “a sudden stop in the economy as credit would disappear,” he added. “I’m committed to that not happening.”
In March, the Congressional Budget Office (CBO) rated the chance of a debt-inspired crisis as low but said it is not possible to quantify the odds.
If the current trend lines continue, by 2029 the U.S. will owe 107 percent of GDP, finally exceeding the record level set just after World War Two, the CBO reported.
That proportion is expected to continue growing. In addition to the Republican Congress’s planned massive tax cut, Social Security and Medicare will demand more money as the population ages and lives longer.
Moody’s projects the federal deficit to reach almost 9 percent of GDP by 2035, “driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.”
TREND FORECAST:
As we noted in “U.S. Poised to Further Increase Its Record National Debt” (21 Jan 2025), interest on the federal debt is the U.S. government’s third-largest expense this year, costing more than veterans’ services, Medicaid, and net outlays for Medicare combined.
Again, as we have forecast, with interest rates high, it costs more to service the debt. Thus, President Trump will push the Federal Reserve to lower interest rates, which, as we have greatly detailed, he did so back in 2018 when he was President when the Dow had its worst December since the Great Depression.
And the lower interest rates fall the deeper the dollar will fall. And the deeper the dollar falls, the higher gold prices rise.
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