Moody's cuts US rating over debt

Moody's, one of the world's most influential rating agencies, announced on Friday that it had withdrawn the highest rating given to the US due to its accumulation of public debt. It is a historic decision that comes after the agency placed the previous rating (Aaa), the highest on the scale, under a "negative" outlook.

This confirms a risk that has been acknowledged in the financial markets for several weeks – the risk that, after Moody's placed the maximum rating on a negative outlook, the US would end up cutting its credit rating for issuing public debt on the financial markets. The rating was lowered from Aaa to Aa1, the second highest on Moody's scale.

The decision is justified by the fact that the US has levels of accumulated debt and annual amounts spent on paying off that debt that are worse than the typical ratios of countries to which Moody's assigns a maximum credit risk rating .

“Successive administrations [in the White House] have failed to agree on measures capable of reversing the trend of high deficits and rising public debt costs,” notes Moody's, which also highlights the tax cuts that in recent years have significantly reduced tax revenue.

Moody's predicts that the US could end up with annual deficits of almost 9% over the next decade, a level even worse than the current 6.4%. Federal debt could reach 140% of GDP by 2035, another indicator that, if confirmed, far exceeds any values ​​normally associated with the sustainability of a country's public debt.

On the other hand, the agency is not making a major cut (and leaves the new rating under a “stable” outlook) because it still considers that the US has some exceptionalities in its economy and its credit capacity, associated with the “size and resilience” of the economy. On the other hand, the fact that the dollar is an international reserve currency is also something that supports the US credit rating.