United States, farewell to triple A: because the downgrade is undermined Trump’s leadership

Remained too often in the background, apart from a relatively restricted circle of specialists, the central question for the United States under Donald Trump broke into the scene on the Italian night yesterday. Moody’s, the rating agency, removed what remained of the triple A of America: The first economy of the world, the leading country in technologies, the most powerful government on a military level, broadcaster of the great reserve and exchange coin of the planet, has lost the most solid evaluation as an international debtor. Since last night, the declassing from the triple to concern all the main notation agencies, now also Moody’s as well as S&P’s and Fitch.

The reasons for the downgrading

It is above all the reasons for last night’s decision to let the implications of the budget situation, for the United States and for Trump’s leadership itself, They can be deep. Because they invest the president of the President, his relationship with the institutions and the American Constitution, as well as the choices on taxes and spending cuts. In the background, those implications potentially also limit the maneuvering of the White House in the commercial wars that Trump himself opened with Europe, China, Japan and Canada.

It is thus, first, because Moody’s expresses a basic skepticism on the effectiveness of the Trump approach and the Republicans at the congress. And it certainly widespread to Wall Street. The rating agency immediately says that The current disorder of the American government must be attributed to the various « administrations and legislatures of the subsequent congress that they have not been able to agree on measures to invest the tendency to large annual deficits and growing costs in interest « on the debt. The latter was produced essentially by Cut cuts at non -financed taxes, such as those of Trump in 2017. But Moody’s adds a passage on the credibility of the president, the expense cutting efforts of Elon Musk and the Republican Party today in the majority to the congress: « We do not think that the current proposals in question can derive substantial reductions in compulsory expenses ». Therefore, we read in the Moody’s note, « in the next decade we expect higher deficits with the increase in the expenditure for acquired rights (entitlementseditor’s note) ».

The effects

With what consequences? Moody’s sees the United States public deficit rise from 6.4% of the gross product in 2024 to 9% in 2035, A public debt that rises from 98% of GDP last year to 134% in ten years and from an expense for interest that will absorb at that point 30% of public revenues (while in 2021 it absorbed just 9% of them, but last year already 18%).

Political constraints

So far the budget framework, already complicated in itself. But then comes the political constraints it implies. Meanwhile, because Moody’s is clear on Trump’s maneuver margin: If he continues to force his hand to the American institutionstrying to focus more and more power in his hands, they could follow new debt downgrading due to the unreliability that would derive from it. The rating agency makes it clear, positively, explaining why now He assigned the Note of the United States « Stable perspectives »: They « take into account the institutional characteristics, including the separation of powers between the three branches of the government (executive, legislative and judicial, editor’s note) which contributes to the effectiveness of policies over time ».

As if to say that any Trump attempt to limit the power of the courts and supplant the congress – as he did so far – could have negative consequences on the markets for American debt. The same is underlined by Moody’s regarding the independence of the Federal Reserve (the central bank) and the international role of the dollar. The rating agency says that these are stability factors, but it knows that Trump has questioned both.
Overall, Trump’s political and institutional space is thus reduced, as well as his maneuvering margin towards financial markets. Something that the economic powers will take note – from Europe, to Japan, China – who are preparing to negotiate in the commercial wars that he himself has opened.