by Jane L. Johnson
Mises.org
American elected officials and taxpayers ignore at their own peril the recent May 16 reduction in the US credit rating. From the highest AAA rating to the next-lower Aa1 rating by Moody’s Ratings, this reduction is the third since 2011, when S&P Global Ratings reduced its rating, followed by Fitch Ratings in 2023.
It does not, however, mean that the US government may default on its Treasury bond obligations or fail to make interest payments on that debt. Rather, the three ratings agencies lowered their ratings because of mounting federal debt (currently over $36 trillion, 122 percent of US GDP) and annual budget deficits (currently about $1.7 trillion, 6.2 percent of GDP). Most economists consider these levels unsustainable.
Yawns and Indifference
This latest rating downgrade met with little fanfare. Stock market investors seemed almost indifferent to the news; stock indices have moved up and down in the intervening days and weeks, with no discernible pattern. There has been no dramatic stock market plunge similar to that following President Trump’s April 2 “Liberation Day” announcement of his reciprocal tariff proposal.