The only major credit rating agency that still gives the United States its top grade warned it is losing confidence in Washington, just before Congress narrowly avoided a government shutdown by passing a short-term spending bill hours before the start of the new fiscal year on October 1.
Moody’s analysts wrote that a shutdown “would underscore the weakness of U.S. institutional and governance strength relative to other Aaa-rated sovereigns.” The blunt language appeared to indicate Moody’s is considering a downgrade of U.S. Treasury securities, though the ratings agency did not specifically threaten action.
“A government shutdown would demonstrate the significant constrains that intensifying political polarization continue to put on U.S. fiscal policymaking during a period of declining fiscal strength, driven by persistent fiscal deficits and deteriorating debt affordability,” the report added.
Fitch Ratings downgraded U.S. credit in August, two months after the federal government came within days of defaulting on U.S. Treasury debt for the first time in history. Fitch said its downgrade of the U.S. to “AA+” reflected an “erosion of governance” that has “manifested in repeated debt limit standoffs and last-minute resolutions.”
S&P Global Ratings downgraded the U.S. in 2011 after a Congressional debt limit battle and warned in March that it may again lower its rating “over the next two to three years if unexpected negative political developments weigh on the strength of American institutions and the effectiveness of long-term policymaking or jeopardize the dollar’s status as the world’s leading reserve currency.”For years, sovereign governments and small investors alike have considered bonds backed by the full faith and credit of the U.S. government to be among the safest investments in the world. But with credit rating agencies expressing growing concern about U.S. Treasury bonds, investors seeking safety and stability may increasingly turn to gold, the ultimate global safe haven.
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