Way back in the summer of 2011, Standard & Poor’s, one of the 3 major ratings agencies, downgraded United States credit rating by one notch to AA+ from AAA. At the time, it was a highly controversial move that surrounded debt ceilings and political infighting. For some, it was a moment that was long overdue for a congress that can’t seem to negotiate until the last possible second when we’re on the precipice of default on our obligations. For others, it was un-American, and S&P should have been ashamed of themselves.
The stock market tanked over the next few days, and government officials bashed S&P in the media. Had this not come on the heels of the global financial crisis (where the ratings agencies lost a lot of credibility), there may have been less argument. But to S&P’s credit, they were trying to regain some semblance of credibility by treating the US government like they would anyone else when assessing governance.
Fast forward to last Tuesday night. Fitch joined S&P with a rating one notch below their best rating at AA+ and cited erosion of governance, repeated debt limit political standoffs, and eroded confidence in fiscal management. Of course, the Biden administration was quick to blame the Trump administration for governance issues (and they didn’t deny they exist!!!!), and Secretary of the Treasury, Janet Yellen suggested that Fitch’s decision was arbitrary and based on outdated data. To which we ask of the Treasury Secretary… WHICH IS IT?!?!?!
But perhaps most sadly, they also blamed the trials surrounding January 6th 2021. While we may not be legal prognosticators, and we have no idea how the various indictments will play out, the political theatre that the two parties are now engaging in is having negative effects on the view of our country’s financial wellbeing. Indicting the former President may or may not be the right thing to do, but in either case, the political rhetoric and media backlash is a terrible look. Back in 2011, the S&P ratings change had a material effect on investment portfolios. It didn’t take place all in one day, but it wasn’t slow either. The Fitch news seems to have left investors largely indifferent… at least so far.
When investors look at their 401ks and see good numbers, it’s difficult to care about bad news, but make no mistake, our country is not being as financially responsible as it used to be, and deficit spending continues to grow. That can’t not matter forever.
Source: The Wall Street Journal