When Fitch Ratings pulled the trigger on a long-anticipated downgrade of the federal government’s credit rating this Tuesday, it sent a jolt through financial markets. Renowned ‘Shark Tank’ star Kevin O’Leary minced no words, putting it quite bluntly: “It’s bad.”
The fiscal watchdog demoted the long-term foreign currency issuer default rating from AAA to AA+. What triggered this downgrade, you ask? The excessive spending, perpetual political deadlock over the debt limit, and lack of solid leadership were major contributors, according to Fitch.
Over the last 20 years, Fitch observes, there has been a constant decline in governance standards, particularly on fiscal and debt issues. This is in spite of the bipartisan agreement in June to suspend the debt limit until January 2025. Fitch predicts that this year, the federal deficit will swell to 6.3 percent of the gross domestic product, a sharp rise from last year’s 3.7 percent.
The founder and chairman of O’Leary Ventures, Kevin O’Leary, opined that this downgrade could spell trouble for every American, not just the financial markets. “When you downgrade the U.S. economy, which is what this downgrading is, you are losing a little faith in the U.S. dollar and the U.S. Treasury bill,” he pointed out.
This downgrade isn’t just a concern for financial analysts. The ramifications could hit home, quite literally. As O’Leary stressed, the cost of borrowing money to fund the government and deficit will surge. In layman’s terms, your car loan interest rates might jump from five percent to somewhere between seven and nine percent. Not a pleasant prospect, is it?
The root cause of the downgrade, according to O’Leary, is the government’s spendthrift policies. The passing of bills like the CHIPS Act and the Inflation Reduction Act resulted in the printing of billions of dollars, inevitably widening the deficit. These recent actions appear to have been the tipping point that led Fitch to downgrade the rating.
Though the immediate reaction to the downgrade on Wall Street was a significant drop in the Dow Jones Industrial Average, there seems to be no alteration to Washington’s course. The current path seems set on full-throttle spending, which doesn’t bode well for fiscal responsibility.
In conclusion, it appears that the downgrade is not only a clear signal for the government to rein in its spending habits, but also a wake-up call for Americans to brace themselves for potential financial challenges ahead. It is a call for fiscal discipline and the need for strong leadership to steer the economy toward stability and growth. As responsible citizens, it is important for us to hold our leaders accountable and push for sensible fiscal policies. After all, the long-term strength of our economy and our dollar depends on it.