US Credit Rating Downgraded

The United States has lost its last top-tier credit rating following a downgrade by Moody's from "AAA" to "Aa1", marking the first such move since 1917. This final downgrade, after earlier ones by S&P Global Ratings in 2011 and Fitch Ratings in 2023, ends America's long-standing status as a triple-A borrower.

Moody's cited the US's rising debt burden, growing interest costs, and failure to implement meaningful fiscal reforms. The decision reflects a significant and sustained increase in federal debt and interest payments, which now surpass levels seen in similarly rated economies.

Experts link this downgrade to various issues, including poor economic planning, an imbalance between fiscal and monetary policies, and weakening governance. Political deadlock in Congress and repeated failures by successive administrations to address ballooning deficits have also played a major role.

Former President Donald Trump's economic policies, including his administration's tariff wars and attempts to curb spending through Elon Musk's Department of Government Efficiency, failed to yield expected results. While efforts were made to boost revenue and cut expenditure, they fell short amid rising imports and contracting government spending. Statistical data shows the US economy shrank in the first quarter of this year as imports surged ahead of new tariffs.

According to CNN, annual federal deficits are projected to climb from $1.8 trillion in 2024 to $2.9 trillion by 2034, as expenditures continue to outpace revenue. The US ran a $1.3 trillion deficit in 2011, which increased to $1.8 trillion last year.

The credit downgrades are closely tied to Washington's unique debt ceiling mechanism, political intransigence, and erosion of institutional stability. S&P’s 2011 downgrade referenced "political brinkmanship'' and declining policy effectiveness, while Fitch in 2023 pointed to "fiscal deterioration" and a weakening of governance.

Economic strategist Dr Mehmoodul Hassan Khan attributed the downgrades to complex, interlinked issues including large fiscal deficits, political obstinacy, and ineffective governance. He emphasised that the decline in institutional stability and macroeconomic indicators has become a persistent issue.

Moody's decision has rattled markets, leading to a rise in US Treasury yields as investor confidence in the government's ability to manage its debt weakens.

Dr Khan stressed the need for holistic reforms, including restructured taxation and spending, better fiscal-monetary balance, improved governance, and constructive politics to address the worsening debt crisis.