08/03/2023
US credit rating has been downgraded by Fitch. Second time EVER.
Why? Well, we (the US taxpayer) authorized (indirectly through Congress, whose members we elect) more national debt than analysts at Fitch believe that we (the US taxpayer) can reasonably manage.
The deficit morphed from about $6 trillion in 2006, to over $33 trillion currently – and that excludes future entitlements that can’t be accurately quantified, but still must be considered.
Just to put this in perspective: That equates to about $300,000 that each working American now owes and has to pay back.
Each working American needs to ponder that figure and ask ourselves, “Can I pay that loan back?” Why? Well, because we have to. It’s our debt to pay. Taxpayers authorized it. Taxpayers have to pay it. No one else will pay it. And it won’t go away unless it’s paid.
That’s the question Fitch is ultimately considering: “Can each and every working American pay their $300,000 loan back.”
Fitch’s conclusion? “It will be a struggle”.
Fitch analysts watched as the cash holdings at the Treasury bled-out by over 70% recently.
Fitch also knows the Federal Reserve is shedding its stockpile of bonds. The problem? They must discount them to sell them (buy high and sell low, essentially). And that further chews into their (actually, our) cash holdings.
We may not see it. We may not understand it. What we’re told by the Federal Reserve Board is complicated and esoteric to us and our ignorance is probably exploited. But Fitch’s Analysts are not fooled. They see what’s happening and rate it empirically. No drama – just numbers and facts.
And they feel conditions are deteriorating financially.
So, they downgraded our credit rating.
There are other factors as well, but the primary issue (from Fitch’s perspective) is this: The US has a spending problem, and we’re not taking initiatives to curtail it. THAT’S what concerns them – the lack of substantive action to address spending.
I know, I know… All you really want to know is, “How will this impact mortgage rates?”
Well last time our credit rating was downgraded, mortgage rates actually improved. But we were in midst of quantitative easing at the time. That was a big influencer.
This time? We’re $14 trillion further in debt. That matters.
I’m in the mortgage business. I understand (and so do my clients because we discuss it) that clients with lower credit scores (credit rating) pay more for debt. The theory is “lower credit score, higher risk.” And along with higher risk comes what? That’s right! Higher rates! And if the US pays more for credit, something tells me we as consumers will too.
I wish I knew exactly how this will impact mortgage rates, but we don’t really know. This is uncharted waters for everyone. So far, the response has not been good, and rates increased notably.
My advice? Fasten your seatbelts.
Cheers!
