The Blubber

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On Tuesday, Fitch Ratings downgraded its US debt rating from AAA, the highest rating, to AA+, citing a consistent decline in governance standards. The downgrade was influenced by several factors, including the recent debt ceiling negotiations that took place earlier in the year, posing the risk of the nation's first default. Another significant contributing factor was the January 6th insurrection.

During a meeting with Biden administration officials, representatives from Fitch Ratings expressed their concern over the January 6th insurrection, emphasizing its impact on US governance. However, this specific event was not mentioned in the official report on the downgrade.

Fitch Ratings did not respond immediately to CNN's request for comment on the matter.

Previously, US debt was viewed as the safest investment option, but the recent rating cut indicates a loss of its appeal. The downgrade could have widespread implications, affecting everything from mortgage rates paid by American homeowners to contracts executed worldwide.

This action may lead investors to sell US Treasuries, causing yields to spike, which in turn affects interest rates on various loans.

Fitch justified the downgrade by pointing to expected fiscal deterioration over the next three years, a high and increasing general government debt burden, and a decline in governance compared to other 'AA' and 'AAA' rated countries over the past two decades. These issues have been evident in repeated debt limit standoffs and last-minute resolutions.

Overall, the decision to downgrade was not solely influenced by the recent debt ceiling standoff but rather by a prolonged decline in governance standards concerning fiscal and debt matters over the past 20 years.

Read more: https://unusualwhales.com/news/united-statess-long-term-foreign-currency-debt-rating-was-downgraded-by-fitch-to-aa-from-aaa