https://x.com/RayDalio/status/1924452875108839862
The U.S. credit rating has been downgraded by Moody’s, marking the first time the agency has taken such action since 1917. The downgrade, from AAA to Aa1, was justified by Moody’s due to the growing U.S. debt levels and the lack of solutions from Washington regarding budget deficits. Despite initial concerns, U.S. markets ended slightly higher on Monday.
However, investors sold off U.S. Treasuries, causing yields to rise. The U.S. dollar fell against a basket of currencies, while gold prices increased. Treasury Secretary Scott Bessent attempted to reassure the market, stating that the downgrade was based on outdated information.
https://x.com/GuntherSchnabl/status/1924813443044970808
He argued that President Trump’s tax cut proposals would stimulate economic growth and reduce the debt-to-GDP ratio. The U.S. debt-to-GDP ratio has risen since 2011, when Standard & Poor’s first downgraded U.S. debt.
Moody’s downgrades US rating impact
https://x.com/rweingarten/status/1924660341042028595
Citigroup analysts acknowledged the downgrade’s timing but suggested it would have limited practical impact, although it might negatively influence market sentiment and fiscal space. Debt hawks argue that the downgrade signifies the need to address America’s growing debt. Michael Peterson, CEO of the Peter Peterson Foundation, emphasized the downgrade’s importance as a warning signal.
Investors may pull money out of U.S. stocks and bonds, redirecting investments towards gold and foreign stocks, as seen earlier in the year. Secretary Bessent also indicated that unresolved trade issues could lead to the re-imposition of high tariffs on countries failing to make trade deals. Ray Dalio, founder of Bridgewater Associates, expressed concerns that Moody’s downgrade does not fully capture the risks associated with U.S. Treasurys.
He emphasized that the federal government’s potential strategy of printing money to meet debt obligations poses a significant threat not adequately reflected by the rating. As the U.S. grapples with these challenges, investors will have to navigate a complex economic landscape, considering the potential impact on interest rates, public spending, and investor confidence.
