Aug 8, 2023

The U.S. gets downgraded, explained.

The U.S. gets downgraded, explained.
Photo by Nick Chong / Unsplash

Plus, why does Tangle have more liberal readers than conservatives?

I’m Isaac Saul, and this is Tangle: an independent, nonpartisan, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 11 minutes.

We're breaking down Fitch's decision to downgrade the U.S. credit rating and what it means for the economy. Plus, why does Tangle have slightly more liberal readers than conservative?

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Quick hits.

  1. Ukrainian authorities arrested a woman yesterday who was purportedly part of an assassination plot against President Volodymyr Zelensky. (The arrest)
  2. Former Minneapolis police officer Tou Thao was sentenced to nearly five years in prison for aiding and abetting second-degree manslaughter in the killing of George Floyd. (The sentence)
  3. A federal judge threw out President Donald Trump's defamation counterclaim against writer E. Jean Carroll. (The ruling)
  4. Ohio voters are deciding today whether to raise the threshold for approving a constitutional amendment from a simple majority to 60%. The ballot measure was proposed by Republicans who hope to make it harder to pass an abortion rights amendment in November and protect the Ohio constitution from special interests. (The vote)
  5. The U.S. Navy has deployed 3,000 troops to the Red Sea after Iranian attempts to seize commercial ships near the Strait of Hormuz. (The tension)

Today's topic.

The U.S. credit rating. Last week, the Fitch Ratings agency downgraded the U.S. government's top credit rating from AAA to AA+, a decision that drew an angry response from the White House and surprised investors. In the initial reaction to the announcement, investors moved money from stocks into government bonds and the dollar.

Explainer: Fitch is one of three major credit agencies that assesses a country's fiscal stability. A high credit rating signals to investors that a country will likely yield long term gains, and investing in its companies or industries is a safe bet. U.S. Treasury bonds are traditionally one of the safest investments there is, and it is rare for the U.S. to have its credit rating downgraded by one of the major agencies. The last time it happened was in 2011. 

What happened? Fitch cited "fiscal deterioration" and repeated instances of down-to-the-wire debt ceiling negotiations as the reasons for its decision (the U.S. debt is now more than $31 trillion). Fitch is the second major rating agency, after Standard & Poor’s, to downgrade the United States from a AAA rating. Australia, Germany, Singapore, and Switzerland are the only countries with AAA ratings from Fitch, Standard & Poor's, and Moody's, the top three ratings agencies.

"It defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world," White House press secretary Karine Jean-Pierre said.

Fitch defines a AAA rating as "the lowest expectation of default risk" and an "exceptional strong capacity" to meet financial commitments. Meanwhile, Fitch's AA rating indicates "expectations of a very low default risk" with a "very strong capacity" to meet financial obligations. Credit rating agencies can add a “+” or “-” to their grade to show “relative standing within the rating categories,” meaning the U.S.’s AA+ rating is slightly higher than the standard AA grade.

In 2011, when the S&P cut the U.S. government's credit rating, it spurred concern about the U.S. economy but had minimal long-term impact.

One curious issue with the rating downgrade is that there is little question about the United States’ ability to pay its debt. Instead, it appears Fitch’s concerns are centered around whether the government will always be willing to pay its debt, as evidenced by political standoffs like the debt ceiling showdown we witnessed earlier this year.

Today, we’re going to take a look at some reactions to the downgrade from the right and left, then my take. 

What the right is saying.

  • Many on the right believe the downgrade is justified but criticize aspects of Fitch's reasoning.
  • Some argue that it is a clear warning sign we are in a precarious situation with our level of debt.
  • Others criticize Fitch for citing January 6 and Republican efforts to cut spending as reasons for the downgrade.

The Wall Street Journal editorial board asked why anyone was surprised.

"The downgrade to AA+ from AAA may even be an overly optimistic assessment of the U.S. fiscal outlook, and it ought to be a warning to the political class, which will ignore it," the board said. "The credit raters aren’t perfect oracles. And we don’t agree with Fitch’s complaint about debt-limit standoffs, since those have been the only recent times when anyone in Washington considers spending restraint. But Fitch’s decision captures the unseriousness of America’s economic decision-making."

At the time of the last downgrade, "the ratio of U.S. debt held by the public to GDP… was only 65.5%, while the Congressional Budget Office expects it to be 98.2% this year. That’s up from 79.4% before the pandemic, and it is expected to rise to 115% of GDP by 2033 on present budget trend," the board said. "As Fitch notes, U.S. 'general government debt,' including state and local government, is more than two-and-a-half times greater than the median 39.6% of GDP for a AAA rating. The future looks worse. The deficit in the first nine months of this fiscal year hit $1.39 trillion, up 169% from the same period the year before."

In City Journal, Milton Ezrati said the move, though it has "rightly been mocked," made an important point.

“The move made waves. Stock prices fell in the U.S. and around the world. Bond prices also dropped, pushing up yields on Treasury bonds as well as bonds generally," Ezrati wrote. Fitch cited deterioration in standards of governance, pointing to "the January 6, 2021, Capitol riot and how the recent debt-ceiling crises had brought the federal government to the brink of default." But this reasoning is weak. "The January 6 riot never threatened the stability of the government. The debt-ceiling fight may have stymied Washington’s ability to borrow, but it never threatened default. Tax revenues, though inadequate to run the entire government, were always more than adequate to meet Washington’s debt obligations.

"What is more, the debt-ceiling debate was a demonstration not of government failure but of Congress’s ability to meet its constitutional obligations by debating political agendas and reaching a compromise," Ezrati said. The downgrade is "financially meaningless," as the Fed could print money and pay bond holders in a pinch, avoiding default. But the downgrade still makes a "worthy political-economic point," namely that "debt is piling up faster than the economy’s ability to support it in real terms, inviting inflation if not default... In contrast to 2011, today’s budget policies and excessive spending are of more concern."

In USA Today, Ingrid Jacques wrote about the irony of this downgrade coming as Biden touts Bidenomics.

"It turns out Democrats’ unlimited appetite for spending and their refusal to address growing deficits isn’t sitting well with close watchers of our economy, and this should serve as a warning that inaction is no longer acceptable," Jacques wrote. "Despite the left’s attempt to dump all of the credit downgrade blame on Republicans (who worked to trim spending) for the debt ceiling showdown earlier this year, the report from Fitch Ratings spells out much bigger concerns about the U.S. fiscal outlook and the need for a spending overhaul. If anything, the downgrade indicates that lawmakers didn’t do nearly enough in their negotiations over raising the debt ceiling."

Biden got bailed out in the press with the latest Trump indictment. That "may be juicy, but the huge expansion of the national debt has real-life implications for each one of us," Jacques wrote. "Rising deficits mean the debt will continue to balloon, especially as trust funds for entitlement programs such as Social Security near insolvency. As the debt increases, economic growth slows — and leads to even higher interest rates... In the next 30 years, spending on net interest will become the nation’s biggest expenditure, surpassing even Social Security."

What the left is saying.

  • Many on the left are critical of the downgrade, arguing that it comes at a time when Biden has ushered in an era of economic strength.
  • Some blame Republicans for the downgrade, saying the debt ceiling standoffs and erosion of governance are largely the fault of Trump and his supporters.
  • Others argue that this is a timely reminder we need to reform our spending.

The Washington Post editorial board called it a "weird" downgrade.

“It is as though someone at Fitch Ratings accidentally hit ‘publish’ Tuesday on its announcement that it was downgrading U.S. government debt from AAA to AA+. The timing was bizarre. The report came out just as the nation was distracted by former president Donald Trump’s indictment. Economic news has been so positive this summer that the Federal Reserve and many on Wall Street no longer predict a recession. Yes, the United States has a long-term debt problem, but the situation has improved slightly in recent months after President Biden and House Republicans struck a deal to avert a debt ceiling crisis, and the U.S. economy has performed better than expected. All of this makes U.S. debt more attractive, not less.

“Americans should not panic. Yet they also should not dismiss concerns about the national debt’s long-term trajectory," the board said. Fitch's rationale is flawed, as it "predicts a tough few years ahead largely because of its forecast of an imminent recession, but that prediction appears outdated. And while few would disagree that politics has become more partisan and contentious, lawmakers didn’t default on U.S. debt obligations." Fitch is right about the growing government debt burden, but that outlook didn't suddenly worsen. The best way to address the debt is for "lawmakers to begin to tackle the country’s long-term fiscal challenges, starting with Social Security."

In Bloomberg, Karl W. Smith said to take Fitch's downgrade seriously but not literally.

"There is next to zero chance the government won’t be able to pay its creditors and the Treasury Department’s access to funding is determined by forces far more fundamental than a few capital letters tied to a ratings report. That doesn’t mean the US’s rising debt burden isn’t a problem," he said. "There are at least three ways" in which federal borrowing could be disruptive. "The first and most worrying is the potential for a so-called debt bomb," in which "the government’s debt burden — which currently stands at $32.3 trillion — becomes so great that even a small increase in interest rates means the Treasury needs to borrow just to cover the cost of servicing the debt. This leads to a vicious cycle, with the added borrowing discouraging buyers, driving interest rates higher and forcing even more borrowing. The resulting sky-high interest rates throw the economy into a deep recession."

The second is "the monetization of the debt," meaning "if traditional buyers of US debt went on strike, so to say, the government might resort to selling Treasuries directly to the Federal Reserve. This is different than the Fed’s quantitative easing program, where it bought Treasuries and related securities in the secondary market to inject funds into the financial system," which ultimately leads to more inflation. "The third potential crisis stemming from too much debt is political." Recall that Trump criticized the Fed raising interest rates to combat inflation, "So, it stands to reason that if Trump had his way, inflation rates would probably have been even higher and more sustained than they’ve been."

In The New Republic, Tori Otten called the downgrade "another indictment on Trump."

"A top official confirmed Wednesday that part of the reason for the downgrade was increased political divisions, as evidenced by the January 6 insurrection," Otten said. "Fitch predicted the U.S. would see fiscal deterioration over the next three years and cited 'the erosion of governance … over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.' But another major reason for the downgrade was the dramatic increase in political polarization, seen in the January 6 attack."

"The fact that the downgrade was announced the same day Trump was indicted is likely a coincidence, but the connection between the two events is still significant,” she wrote. Trump faces four counts that include conspiracy to defraud the United States, conspiracy to corruptly obstruct an official proceeding, obstruction of and attempt to obstruct an official proceeding, and conspiracy against the right to vote.. Hundreds of people who descended on Washington to try to stop the certification of votes have said they were responding to a call from Trump... So it turns out that Trump, who promised a strong economy, has actually cost the U.S. standing in the global market."

My take.

Reminder: "My take" is a section where I give myself space to share my own personal opinion. If you have feedback, criticism, or compliments, don't unsubscribe. Write in by replying to this email, or leave a comment.

  • This was bound to happen, and is probably well-deserved.
  • Yes, our partisan infighting could make this worse, but the biggest issue is the size of our debt.
  • We need to start moving to reform Social Security and get this ball rolling.

I'm surprised it didn't happen sooner.

I admit that I scoffed a bit when I read the reference to January 6 in the Fitch rating reasoning — I don’t think that day was a risk to our economy or ability to pay our debt. But I do think it is a reasonable bullet point to include when making the argument that our politics are increasingly partisan and unstable. The debt ceiling negotiations, the vitriol in Congress, the inability to compromise — all of that could threaten our ability to put together responsible fiscal plans if it worsens.

Still, the factor to be most concerned about is — or should be — the biggest and most obvious reason for the downgrade: Our debt.

We need fiscal reforms in our country in order to find solid ground. Neither President Biden nor leading Republican candidate Donald Trump have shown any interest in reforming entitlement funding, which is the single biggest threat to our fiscal stability going forward. Trump attacks any Republican who wants to mention tax reforms, and the party is deathly allergic to any increase. Biden and the increasingly progressive Democratic party want to expand entitlement programs that would cost more money, requiring the kinds of tax hikes they don’t currently have the political capital to execute.

Both sides face this stark reality: U.S. debt as a share of the economy is skyrocketing. Costs for Social Security are going up faster than revenue raised. Our population is aging, meaning there are more people getting their payouts. If nothing is done, Social Security may have to reduce payments by 2034.

Even in a world where our debt does not cause the kind of crisis some economists warn about, there is no doubt that putting our money toward servicing government debt will take government funding away from other programs. Every dollar we have to put toward debt payments is a dollar we can't put into infrastructure, education, healthcare, or the military.

This rating downgrade won't immediately impact your life or mine, but it is a shot across the bow. And our legislators need to take note. Fortunately, there are options. The Washington Post editorial board has a compelling, pragmatic, and realistic plan that draws on ideas from the right and left to address the problem. It includes increasing the retirement age to keep up with rising life expectancy, broadening taxes to fund Social Security, and decreasing what high-income households get (while increasing what low-income households get). It's a smart and realistic plan, one that this Congress could pass if it had the courage and political will.

The board also lays out ideas on Medicare, farm subsidies, veterans care, and the defense budget. Sensible ideas abound. Addressing Social Security needs to be the priority, and could spur suggestions and compromises in other areas if President Biden or members of Congress showed they were really serious about addressing the problem.

Fortunately, the board is not alone: the Bipartisan Fiscal Forum is drawing in representatives from the right and left to form a fiscal commission, aiming to take the partisanship out of some budget cutting. These embers could turn to a real fire if the public provides enough oxygen. 

Your questions, answered.

Q: Why do you think there are more liberal Tangle readers than conservative ones? My initial instinct was that either Tangle leans more to the left, or that more liberal people read the news/are open to moderate viewpoints. I doubt the first explanation, and wonder about the second. Do you think it's one or a combination of these, or something else?

— Caleb from Goshen, Indiana

Tangle: Let me provide a little background on the stats first. When we surveyed our readership at the end of 2022, we found that roughly 40% of our readers are liberal, 30% are centrist or independent, and 30% are conservative. While this is a good ideological spread that demonstrates more balance than any other publication that I know of, it does still skew a little liberal. So your question is a good one.

Up front, I'll say that there are a few theories I don't find particularly compelling: 1) Maybe I'm a secret leftist, that bias is pervading my arguments, and it’s turning away conservatives. 2) Maybe liberals are more likely to read news like Tangle, or conservatives are less likely to read anything critical of conservatism. 3) Maybe we just aren't critical enough of the current administration for conservatives to want to stick around.

I know #1 is not true, and I know our structure offers a great deal of balance in every newsletter. #2 is a reasonable hypothesis, but it’s based on dated social science; it appears no longer true that conservatives are more close-minded than liberals. And #3 doesn't make much sense because I personally have been openly critical of this administration, and we share arguments very critical of it nearly every day (under "What the right is saying").

Perhaps the imbalance is entirely due to conservatives just being less likely to respond to polls. That may be part of it. But that should be canceled out by polling respondents tending to skew older, and older Americans tending to be more conservative. It’s just as possible that conservatives are actually over-represented. It’s difficult to say.

One idea I have is that there are just more left-of-center news outlets out there, which I think has the opposite effect for Tangle readership of what you might predict. Rather than meaning fewer potential Tangle readers, it means that a person who would want to read Tangle — a person who wonders "what do people who disagree with me think" — is more likely to be more left-leaning, because it's easier for a right-leaning person to have an answer to that question (it's the prevailing viewpoint of the majority of mainstream media).

Then again, it may just be the network effect: I lived in Brooklyn when I started Tangle, a lot of my friends there were more liberal, and the initial social circle that spread Tangle was more liberal, so maybe that's it?

Truthfully, I don't have a great answer. I can say that it is a matter of introspection for us. We're very proud of the ideological spread in our readership, since our goal is to be trusted by people across the political spectrum equally. So keeping those numbers where they are, or even closer to an even split, is very important!

Want to have a question answered in the newsletter? You can reply to this email (it goes straight to my inbox) or fill out this form.

Under the radar.

Floods in China and wildfires on several continents are disrupting important crop yields that we rely on to feed the global population. Corn, wheat, and rice make up roughly 42% of the world's food calories, but corn yield is going down and rice production in India has been hurt by droughts and heavy rains. Efforts are underway to develop more climate-resilient crops, but price hikes and constrained supply will be more and more common as these climate events become more frequent. Axios has the story


  • $32.7 trillion. The total U.S. national debt, as of this morning.
  • 49 million. The number of retirees who currently receive Social Security.
  • $1,538. The average monthly payments to those retirees.
  • $5.8 trillion. The total amount of money spent by the U.S. government in 2022.
  • $1.2 trillion. The amount of that money that was spent on Social Security.
  • 67. The age at which anyone born after 1960 can currently receive full Social Security benefits.

The extras.

  • One year ago today we covered the Inflation Reduction Act.
  • The most clicked link in yesterday's newsletter was the glacial flood in Alaska.
  • Day in Court: 865 Tangle readers responded to our poll asking what would be the most likely outcome for all of Trump's indictments. 42% said that he'll be found guilty of one or more count in court, 36% said he'll take a plea deal, 13% said the charges will be dropped (after his election, or otherwise), 3% said he'll be found not guilty on all counts, and 6% were unsure or had no opinion. "I think his lawyers will advise he take a plea deal but I don't think he will," one respondent said.
  • Nothing to do with politics: Tahoe's bear burglar apprehended.
  • Take the poll. Do you think Fitch was correct in downgrading the U.S. government's credit rating? Let us know!

Have a nice day.

In July, 93-year-old Everett Kalin summited the Half Dome in Yosemite, becoming one of the oldest people — if not the oldest person — ever to do so. He completed the trek with the help of his 57-year-old son, Jon, and his 19-year-old granddaughter, Sidney, who secured the needed permit and planned the journey. When Kalin finally got to the top, there was an outburst of cheering from the many people they had met along the way. "It was like paparazzi, everyone taking videos and photos," Jon said. "I’m choking up just talking about it now. The power of seeing him was so much joy and inspiration." Just a day after he returned home to Oakland, Kalin said he wasn’t even sore from the hike. "I just feel so very grateful to the people that made it possible," he said. "I’m actually feeling great." SFGate has the story.

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Isaac Saul
I'm a politics reporter who grew up in Bucks County, PA — one of the most politically divided counties in America. I'm trying to fix the way we consume political news.