Moody's Downgrades the US Government's "Unblemished" Credit Rating

Moody’s, one of the world’s three largest rating agencies, has downgraded the US government’s credit rating for the first time since 1919. This is a landmark move that reflects the unsustainable course of fiscal policy in the US, which issues the world’s reserve currency.

All three major US credit rating agencies have now downgraded the US government’s credit rating. Standard & Poor’s was the first to do so in 2011, followed by Fitch in 2023. Moody’s had previously given the US the highest possible rating of AAA. Now it has been cut to AA1.

“Several US administrations have failed to consistently agree on how to get rid of high budget deficits and reverse the trend of rising interest payments,” Moody’s said on Friday.

“While we recognize the significant economic and financial strengths of the United States, they no longer fully offset the deterioration in fiscal performance,” Moody’s said, noting that the US national debt has grown sharply for more than a decade and that higher interest rates are putting pressure on it.

The US Government is in Denial

Of course, those close to US President Donald Trump began to criticise the decision. We saw a similar attitude during the Biden administration when Fitch decided to downgrade the US.

Stephen Moore, a former Trump economic adviser and economist at the Heritage Foundation, called the move “unprecedented” and disagreed with the decision. “If a U.S. Treasury bond is not a AAA-rated asset, what is?” he told Reuters.

White House Public Affairs Director Steven Cheung responded to the decision in a social media post by criticizing Moody’s economist Mark Zandi. He called him an opponent of the Trump administration. “Nobody takes his ‘analysis’ seriously. He’s been wrong time and time again,” Cheung explained.

The Risks are Even Higher

However, according to Ray Dalio, billionaire and head of the world’s largest hedge fund Bridgewater Associates, Moody’s latest decision does not reflect the true extent of risk in US government bonds.

“You should know that rating agencies underestimate credit risk because they only assess the risk that a government will default on its loans,” Dalio said on Platform X. “They don’t account for the much larger risk that governments will print money to pay off their debts, thereby reducing the value of the money that bondholders receive.”

“For those who are concerned about the value of their money, the US national debt poses much greater risks than the rating agencies are expressing,” Dalio added.

Re the U.S. debt downgrade, you should know that credit ratings understate credit risks because they only rate the risk of the government not paying its debt. They don’t include the greater risk that the countries in debt will print money to pay their debts thus causing holders…

— Ray Dalio (@RayDalio) May 19, 2025

Following Moody’s decision, US Treasury bond yields began to rise in the market. The 30-year bond yield briefly exceeded 5 percent. The 10-year bond yield rose to 4.52 percent.

The US government’s budget deficit already exceeds 6 percent of gross domestic product. Years of higher interest rate environment have pushed up both the cost of new loans and interest payments.

Meanwhile, lawmakers are working on a new tax package that would significantly reduce taxes. The tax cuts are likely to further increase the budget deficit in the coming years. The plan that just passed the House of Representatives would cut spending by $1.5 trillion over 10 years, but that would not cover the $4 trillion increase in the deficit that the tax cuts would cause.

Key Takeaways From Tavex Analyst

If former and current US administration officials are wondering what the highest-rated safe haven asset is if not US Treasury bonds, the answer is very simple. It is gold. Gold does not depend on the economic policies of any country, and the poor decisions of any government do not cause its price to fall. Quite the opposite. Unlike government bonds, which can be issued indefinitely, gold is limited in quantity. It has the properties of money. It is a historical reserve asset that central banks have begun to actively buy up.

Psychologically, it is very understandable that US government officials are in denial. The US budget situation is obviously very bad and I believe that many politicians understand this. However, this cannot be said at the highest level of power, because then they will start sawing off the branch they are sitting on. However, US Treasury Secretary Scott Bessent has stated that their goal is to get the interest rate on US government bonds down. Obviously, because keeping the current system alive is becoming increasingly difficult.

The levels of national debt in the US and many other countries have exceeded any limits of sustainability. The US debt burden has risen higher than it was in the final years of World War II. At the current rate, the US is clearly heading towards a debt crisis, and if the country that issues the world’s reserve currency gets into a debt crisis, then the same will happen to many other countries that have borrowed themselves to the brim.

Moody’s decision to downgrade the US for the first time since 1919 is extremely significant. It shows that the smell of a coming debt crisis is already reaching the mainstream and the processes that are undermining the current monetary system are accelerating. In the current monetary system, debt is money and money is debt.

Government bonds are the foundation of the entire system for financial institutions in the long term. If their value starts to decline rapidly, the entire global monetary system based on the dollar’s reserve currency status will be shaken. The cracks are clearly already visible, and even the rating agencies, which patriotically heroize US bonds, can no longer completely deny this.