Moody’s Flags Mounting Debt as U.S. Credit Rating Falls

Credit agency Moody’s has downgraded the credit rating of the U.S. government from AAA to AA1. The reason is the growing national debt and the lack of concrete plans to cut government spending.According to a statement on May 16, U.S. lawmakers have failed for years to tackle annual budget deficits and cut spending, leading to a rising national debt.”We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration. Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat,” the agency said in a statement.The downgrade is just one notch on the 21-step scale the company uses to assess an organization’s credit health.Despite a negative short – and medium-term credit outlook, Moody’s maintained a positive view on the long-term health of the United States. The agency cited the country’s strong economy and the U.S. dollar’s status as the world’s reserve currency as strengths, reflecting “balanced” credit risks.Moody’s statement has elicited mixed reactions from investors and market participants, many of whom are not convinced by the agency’s revised outlook.Gabor Gurbacs, CEO and founder of Pointsville, a cryptocurrency rewards program company, pointed out that the agency’s previous credit scores in times of financial stress were unreliable, indicating that the outlook was too optimistic.”This is the same Moody’s that gave AAA ratings to sub-prime mortgage-backed securities that led to the 07-08 financial crisis,” the executive wrote on a social media platform X.However, macroeconomic investor Jim Bianco asserts that Moody’s recent credit outlook does not reflect a real downgrade in the perception of the U.S. government’s creditworthiness and characterizes the statement as “piffle.”Interest rates on 30-year U.S. Treasury bonds rose to nearly 5% in May 2025, indicating a decline in long-term investor confidence in U.S. debt.U.S. government debt surpassed $36 trillion in January 2025 and shows no signs of slowing despite recent efforts by Elon Musk to cut federal spending and reduce the national debt.As the debt grows and investors lose faith in U.S. government securities, bond yields will skyrocket, leading to higher debt service payments, further inflating the national debt.This creates a vicious cycle, as the government will have to attract investors with ever higher yields to incentivize them to buy government debt.The U.S. national debt situation continues to escalate, and without a major structural change in fiscal policy, the country risks facing even more serious consequences in the future.Get Started on Kraken