The long-term foreign currency issuer default rating was lowered to AA+ from AAA, according to CNBC. Fitch cited repeated debt-limit conflicts and last-minute resolutions as factors eroding confidence in fiscal management.
Fitch perceives a continuous decline in governance standards over the past two decades, particularly concerning fiscal and debt issues, despite the bipartisan agreement in June to suspend the debt limit until January 2025.
Fitch predicts the federal deficit to reach 6.3% of the gross domestic product this year, a notable increase from the 3.7% recorded last year.
According to the agency, the cuts to non-defense discretionary spending (constituting 15% of total federal spending) agreed upon in the Fiscal Responsibility Act would only provide a modest improvement to the medium-term fiscal outlook.
According to Fox News, O’Leary, the chairman of O’Leary Ventures, expressed concern that the downgrade poses troubles for all Americans.
O’Leary said, “There is no way to sugarcoat this at all. It’s bad. And I’ll tell you how you measure it’s bad. Basically, 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 continued, “Most sovereign funds keep the majority of their liquidity in U.S. dollars. That got hurt 24 hours ago because now you start to ask yourself, ‘Well, where is this going? A downgrade from AAA to AA, does it go to single?’ Now, if you’re a sovereign wealth fund, you start to put that in your mind.”
O’Leary emphasized that there would be a price for Americans to pay.
He said, “And the bottom line for you and me is the cost of capital goes up. In other words, what it costs for us to borrow money to fund the government and the deficit goes up. No sugarcoating that. The kitchen table in America, your car loan just went up from five to somewhere between seven and 9 percent. That’s not going to help. So the cost of your loan and your borrowing and your mortgage going up, period.”
It's like VISA hiked Uncle Sam's monthly interest rate by 2-4%. Yet mushrooming US deficits, entitlements & political chaos suggests more downgrades loom…
Kevin O'Leary sounds alarm on downgraded US credit rating: 'No way to sugarcoat this… it's bad'https://t.co/jY8EcZq86E
— davd soul (@davdsoul) August 3, 2023
O’Leary pointed to the CHIPS Act and the Inflation Reduction Act as a one-two punch that contributed to the decline in America’s credit rating. He expressed concern over the massive printing of billions of dollars, which the government claims is necessary but also leads to increased spending and a rising deficit, thus resulting in Fitch’s downgrade decision.