Bad news for the U.S., good news for gold
In a major reassessment of US creditworthiness, Fitch, one of the leading credit rating agencies has downgraded the U.S. credit rating from AAA to AA+.
Fitch based its downgrade on “expected fiscal deterioration over the next three years, and a high and growing general government debt burden.”
Fitch isn’t the first of the three leading rating agencies to downgrade US debt. The US lost its S&P AAA rating in 2011, shortly after then-Treasury Secretary Timothy Geithner said the US would “never” lose its triple-A rating.
Underscoring the significance of the move, Treasury Secretary Janet Yellin is throwing a fit: “President Biden and I are committed to fiscal sustainability.”
“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,” said Yellin.
But no matter how hard it tries, Washington can’t spin this as a good thing.
From Fitch’s statement:
“In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025. The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management. In addition, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process….”
The downgrade was announced on Tuesday. On Wednesday the Treasury Department announced plans for record new borrowing. Wolf Richter writes about the “shocker of an announcement” by the Treasury Department “that it would have to borrow $1 trillion in the quarter through September and another $852 billion in the quarter through December, on top of the $32.6 trillion the government already owes.”
It’s another leg up in what Richter calls “Debt Out the Wazoo!”
To add insult to injury, Fitch says, “Everybody who reads the newspaper knows that the United States has a very serious long-term fiscal problem.”
It’s a good point, except that newspapers don’t cover the news as they once did. Take a look at this ironic snippet from Wall Street on Parade:
There is a website where one can look at the front pages of newspapers across America on any given day to gauge the concerns of our fellow citizens. Yesterday, we checked small and medium size newspapers across the country to see if any newspaper reported the Fitch downgrade of the U.S. credit rating on its front page. Of the two dozen newspapers we sampled, we couldn’t find any mention of the credit downgrade.
The US losing its Triple A debt rating is a seismic even in the financial world. That’s why foreign central banks want gold. For protection against the dollar.
And that is exactly why you need to protect yourself as well with gold and silver.