Eventually – and it can be defied for a long time by a government, especially if it’s the government of the most economically powerful nation in the world – but not forever, not even for the United States.

Moody’s on Friday cut the U.S. credit rating one notch to Aa1 from Aaa, citing the federal government’s ballooning budget deficit and soaring interest payments on the debt. It was the last of the three major credit agencies to downgrade the U.S. from the highest possible rating.

Here’s a graphic of one of those reasons for the credit downgrade.

But even that doesn’t take account of everything:

Bridgewater Associates founder and billionaire Ray Dalio warned Monday that Moody’s downgrade of the U.S. sovereign credit rating understates the threat to U.S. Treasurys, saying the credit agency isn’t taking into account the risk of the federal government simply printing money to pay its debt.
…
“You should know that credit ratings understate credit risks because they only rate the risk of the government not paying its debt,” Dalio said in a post on social media platform X.

Which we already saw in recent years when massive increases in spending by Congress were justified first by the Chinese Lung Rot Pandemic and then by the recovery from that, even into 2023 when the normal recovery was well underway, and which was actually stymied by the inflation caused by all that government spending.

That occurred when the Presidency was controlled by both the GOP and the Democrat Party. If you don’t want to watch the 4 minute video below from former Congressman, Dave Brat, here are four of the charts he talks about (he actually has more than four).

The problem is cutting spending. The Democrats never even consider it of course, while the GOP is too frightened of the political consequences, even if it meant merely chopping spending back to the $4.45 trillion of 2019 from the grotesque $6.75 trillion of 2024 – 51% higher than just five years ago.

Don’t get too smug; New Zealand’s National-led coalition government is in much the same spot, albeit not as bad thanks to the work of past Finance Ministers from Richardson and Birch in the 90’s to Cullen (yes, even him) and English through the 00’s and 10’s in paying down debt and keeping spending increases reasonably under control (Cullen allowed too much of an increase but looks like a miser compared to “Robbo” Robertson from 2017-2023).

Secretary of the Treasury, Scott Bessent is already making noises about growing the economy faster than the debt so that the debt/GDP ratio drops – which sounds awfully similar to the noises being made by Luxon-Willis; “We’ll grow our way out of these problems”.

That might work for us, given our relatively low ratio (actually getting our moribund private sector economy growing is another question), but with the US debt being north of GDP and growing at the rate of $1 trillion every 100 days, now standing at almost $37 trillion (up from $22 trillion when I wrote my first post on this topic in 2019), the US would have to maintain good annual growth rates (say 4%+) for years to beat the growth in debt. But that never happens; even the boom-times of the 1960’s, 80’s and 90’s ended in less than a decade, and interest rates can rise faster than economic growth.

The impact of the current interest cost has been predicted for twenty years and still there has been no real change. DOGE has done good work in identifying the grist and waste, if not criminal fraud, in Federal government spending but even so, they’re not close to the trillion dollars in saving that Musk hoped for, and there’s only so much that the Executive branch of government can do anyway. The savings DOGE has found will come to naught unless Congress includes them in its budget – and so far they’re not doing it. The “Big, Beautiful Bill” may pass but I’m sceptical about anything more than the 2017 tax cuts being maintained beyond their sunset dates.

Which is why the following is a bit of a joke in ways beyond the cartoonist’s jab at the GOP ignoring their voters.

That’s because on the really big spending issues, the GOP very much is listening to the voters – when it comes to the Social Security, Medicare and Medicaid systems, the three monsters of Federal spending, which the voters absolutely do not want to touch (and neither does President Trump).

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The Economics of It:

The politics of it: