Source: Sputnik News
US markets posted major losses Wednesday on news of Fitch’s decision to downgrade the US’s credit rating from AAA to AA+ on expectations of a “fiscal deterioration” in the nation’s finances and a growing debt burden. Sputnik reached out to economists and finance experts for insights into what’s really going on behind the scenes.
The fallout from Fitch Ratings’ decision to downgrade the US’s long-term foreign currency issuer default rating continues to swirl, with the Nasdaq, New York Stock Exchange and Dow Jones Industrial Average all tumbling between one and two percentage points in Wednesday trading.
Treasury Secretary Janet Yellen, who slammed Finch’s move as “arbitrary,” assured that the downgrade doesn’t change US Treasuries’ status as “the world’s preeminent, safe and liquid asset,” or the ‘fundamental strength’ of the US economy.
Analysts warned that the long-term impact of the downgrade could include increasing borrowing costs to service the nation’s mammoth $32.7 trillion national debt, which is on course to exceeding that of the next four top debtor countries (all of them G7 nations) combined.
Ticking Time Bomb
The downgrade isn’t really anything unexpected if one looks at the US economy’s fundamentals, Dr. Rodney Shakespeare, renowned economist, political commentator and author, told Sputnik.
The observer believes the drama surrounding the indictments against former president Donald Trump, which “could push an already-divided America into both political and social collapse,” plus the “growing awareness” of the “foreign policy disaster” in Ukraine, also help account for Fitch’s decision.“
The recognition of the aggressive movement of NATO over twenty five years and the implications of the sanctions on Russia on the global system have combined with the great global shift from a unipolar to a multipolar world [served] to shock the Fitch analysts. All the way around the world, countries are planning – somehow, to break away from the ghoulish clasp of the American dollar. The analysts are having an ‘Oh my God!’ moment in which they recognize that the situation is changing, negatively, right beneath their eyes,” Shakespeare said.
The economist doesn’t expect Washington to heed Fitch’s warning to change its monetary and fiscal policy. The warning “will, however, alert the rest of the world to the moving disaster that the USA is rapidly becoming.”
‘Housekeeping’
Senior market analyst and columnist Jim Wyckoff holds a more conservative view on the implications of the downgrade. Characterizing it as a “kind of housekeeping move based on things that have been going on for the past several years,” Wyckoff told Sputnik that he doesn’t expect “anything more significant to come out of this,” or for it to cause anything beyond a “ripple in the marketplace,” unless other major credit rating agencies follow Finch’s lead.
Behind-the-Scenes Battle Between Yellen and the Fed?
Veteran market analyst and geopolitical observer Tom Luongo has a different perspective altogether, telling Sputnik that Fitch’s downgrade was “a long time coming” amid the Biden administration’s spendthrift economic policy, and that it’s evidence of a battle between the Treasury’s money-printing machine and Jerome Powell’s Federal Reserve as the latter struggles to get a handle on inflation.“
Per Fitch’s statement, the US is facing a fiscal nightmare because of its budget deficits, proposed spending and an aggressive Federal Reserve. With the Fed Funds Rate now at 5.5 percent and…Powell expected to continue raising rates, the interest on the US will overwhelm the Federal Budget,” Luongo said.“
This downgrade reeks of political blackmail. This is all about reversing the collapsing US dollar liquidity overseas to save a system that is well past time to be replaced,” Luongo stressed.“
Fitch gave away the real story of this downgrade by advising scrapping the debt ceiling. This was an open tell that they were acting in concert with Janet Yellen at Treasury,” he added.
‘A Good Thing’
Ultimately, Luongo believes the downgrade may increase America’s borrowing costs, putting a hamper on the Biden administration’s proposed spending, and “accelerate the fiscal crisis coming between conservatives and spendthrifts,” which is ultimately “a good thing.”
