America's credit rating downgraded under Biden;  White House rushes to blame Republicans

The U.S. under the Biden administration has suffered a credit downgrade by one of the "Big Three" credit rating agencies.

Rather than assume any responsibility, Biden officials and other Democrats have sought to blame this embarrassing signal of decline on the Trump administration, which had managed a top rating.

The Biden downgrade

Fitch Ratings knocked the U.S. government's top credit rating from AAA down to AA+ on Monday, noting the downgrade "reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions."

The agency suggested that standards of governance have dropped precipitously over the past two decades and noted that the government "lacks a medium-term fiscal framework."

Additionally, the agency indicated "there has been only limited progress in tackling medium-term challenges related to rising Social Security and Medicare costs due to an aging population."

Fitch anticipates that the general government deficit will spike to 6.3% of GDP this year from 2.7% in 2022, "reflecting cyclically weaker federal revenues, new spending initiatives and a higher interest burden."

This deficit of GDP may spike to 6.6% next year and reach nearly 7% by 2025.

The "interest-to-revenue ratio is expected to reach 10% by 2025 (compared to 2.8% for the 'AA' median and 1% for the 'AAA' median) due to the higher debt level as well as sustained higher interest rates compared with pre-pandemic levels," stated Fitch.

Extra to poor and worsening governance, rising deficits, and an alarmingly high interest-to-revenue ratio, the rating agency indicated a mild recession will hit in the fourth quarter of this year and real GDP growth will fall from 2.1% (as of 2022) o 1.2%.

The last time the U.S. had its credit rating knocked down a peg was in 2011, when Standard & Poor took away America's triple-A grade.

Aftermath

CNN reported that this rating downgrade, which came two months after President Joe Biden and the House lifted the government's $31.4 trillion debt ceiling, could drive investors to dump U.S. Treasuries, resulting in a spike in yields that "serve as references for interest rates on a variety of loans."

The Associated Press indicated that the downgrade might ultimately lead to the federal government paying higher interest rates, thereby driving up interest costs for taxpayers.

Following Fitch's announcement, the Dow plunged 348.16 points Wednesday, or 1%, the Nasdaq dropped 310 points, or 2.2%, and the S&P slipped 1.4%, reported the New York Post.

Yahoo Finance reported that Treasury yields surged and stocks slipped further Thursday morning, with the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite dropping 0.4%, 0.2%, and 0.5% respectively.

Steven Ricchiuto, U.S. chief economist at Mizuho Securities, told the Post that this downgrade "basically tells you the U.S. government’s spending is a problem. It’s an unsustainable budget situation because the economy can’t even grow its way out of this problem going forward. ... Therefore, they’re going to have to either tackle it or accept the consequences of potential further additional downgrades."

Democrats look for someone else to blame

White House press secretary Karine Jean-Pierre released a statement Monday, saying, "We strongly disagree with this decision."

Jean-Pierre rejected Fitch's conclusion, claiming, "It defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy."

Rather than this having something to do Biden or his administration, the press secretary claimed "extremism by Republican officials" was at fault and constituted "a continued threat to our economy."

Biden Treasury Secretary Janet Yellen stated, "I strongly disagree with Fitch Ratings' decision. The change by Fitch Ratings announced today is arbitrary and based on outdated data."

Yellen appealed to the firsthand experience of Americans to justify her claims, saying, "Fitch’s decision does not change what Americans, investors, and people all around the world already know: that Treasury securities remain the world’s preeminent safe and liquid asset, and that the American economy is fundamentally strong."

Kevin Munoz, a spokesman for the Biden campaign, tried to pin the downgrade on former President Donald Trump, going so far as to call it the "Trump downgrade," reported NBC News.

Munoz said it was "a direct result of an extreme MAGA Republican agenda defined by chaos, callousness, and recklessness that Americans continue to reject."

Contrary to Munoz's suggestion, the latest New York Times/Siena poll has Trump and Biden tied. Meanwhile, the majority of Americans appear dissatisfied with Biden's leadership, with 56% of likely voters disapproving of the job he is presently doing.

Pennsylvania Rep. Brendan F. Boyle, ranking member of the House Budget Committee, similarly sought to shunt responsibility, claiming in a statement, "Fitch's decision to downgrade rests on the shoulders of Speaker McCarthy and the extreme MAGA Republicans who openly rooted for default."

"Republican extremism and recklessness has undercut the American economy," added Boyle, suggesting Biden and Democrats "are committed to fiscal responsibility."

Sen. Chuck Schumer (D-N.Y.) claimed that the "downgrade by Fitch shows that House Republicans' reckless brinkmanship and flirting with default has negative consequences for the country."

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