 |
Photo = Yonhap news |
[Alpha Biz= Paul Lee] Moody’s, one of the world’s top three credit rating agencies, has downgraded the United States’ sovereign credit rating, citing unsustainable levels of national debt and a bleak fiscal outlook. This follows similar actions by Standard & Poor’s in 2011 and Fitch in 2023.
On May 16 (local time), Moody’s lowered the U.S. credit rating by one notch from the highest level of ‘AAA’ to ‘Aa1’. The agency stated, “Government debt has already reached a serious level, and large-scale tax cuts being pursued by the Republican Party are likely to further aggravate the situation.” The U.S. national debt currently stands at approximately $36 trillion.
A downgrade in sovereign credit rating can raise borrowing costs for not only the federal government, but also for corporations and financial institutions. It can also undermine investor confidence in dollar-denominated assets, including U.S. Treasuries. When S&P downgraded the U.S. rating in 2011, major stock indices such as the Dow Jones Industrial Average plummeted over 10%.
The U.S. government responded swiftly. White House spokesperson Kush Desai criticized the move, saying, “Moody’s stood by during four years of fiscal disaster, and now it chooses to act. This undermines the agency’s credibility.”
Moody’s downgrade could have significant ripple effects across global financial markets. The move comes at a time when the appeal of dollar assets is waning due to concerns over the U.S. trade war and stretched equity valuations. Foreign investors have recently shifted their portfolios, turning net buyers in Asian markets including South Korea.
Meanwhile, China—once the top holder of U.S. Treasury securities—has continued to reduce its holdings. According to U.S. Treasury Department data, China held $765.4 billion in U.S. Treasuries as of the end of March, falling behind the U.K. ($779.3 billion) for the first time since October 2000. Japan remains the largest holder of U.S. Treasuries, having overtaken China in 2019.
AlphaBIZ Paul Lee(hoondork1977@alphabiz.co.kr)
