Moody's cited the burgeoning debt burden of the US government in financing the federal government's budget deficit and rising cost of rolling over existing debt amid high interest rates. A sign that it has inherited the burden from the previous Biden government and nothing in 100 days to bring down the debt or the cost of servicing the debt.

“This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” the ratings agency said in a statement.

The decision to lower the United States credit profile could be expected, at the margin, to lift the yield that investors demand in order to buy U.S. Treasury debt to reflect more risk, and could dampen sentiment toward owning U.S. assets, including stocks. Having said that, all the major credit rating agencies continue to give the United States their second-highest available rating.

The yield on the benchmark 10-year Treasury note climbed 3 basis points in after-hours trading, trading at 4.48%. The iShares 20+ Year Treasury Bond ETF fell about 1% in extended trading, while the SPDR S&P 500 ETF Trust fell 0.4%.

Moody’s had been a holdout in keeping U.S. sovereign debt at the highest credit rating possible and brought the 116-year-old agency into line with its rivals. Standard & Poor’s downgraded the U.S. to AA+ from AAA in August 2011, and Fitch Ratings also cut the U.S. rating to AA+ from AAA, in August 2023.

“Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s analysts said in a statement. “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”

The U.S. is running a massive budget deficit as interest costs for Treasury debt continue to rise due to a combination of higher rates and more principal debt to finance. The fiscal deficit in the year that began October 1 is already running at $1.05 trillion, 13% higher than a year ago. Revenue from tariffs helped shave some of the imbalance last month.

The Moody’s downgrade came as the GOP-led House Budget Committee on Friday rejected a sweeping tax cut package as part of President Donald Trump’s agenda, including extending tax cuts enacted in 2017. Moody’s officially rated U.S. bonds in 1993 for the first time but had assigned a “country ceiling rating” of AAA on the U.S. since 1949.

As if Moody's stripping the US economy of its triple ratings, wasn't’ a shock for the Trump administration, GOP Conservatives blocked Trump’s agenda bill from advancing in a major setback. It's a shock for the GOP seniors.

The House Budget Committee - voted down the massive party-line package, with a critical band of Republicans pushing for deeper spending cuts . The GOP-led H BC voted to reject a sweeping package for President Donald Trump's agenda on Friday, dealing an embarrassing setback to Speaker Mike Johnson, R-La., and Republican leaders.

The vote in the Budget Committee was 16-21, with a band of conservative hard-liners who are pushing for steeper spending cuts joining all Democrats in voting against the multi trillion-dollar legislation, leaving its fate uncertain.

The Republicans who voted "NO" were Reps. Chip Roy of Texas, Ralph Norman of South Carolina, Andrew Clyde of Georgia and Josh Brecheen of Oklahoma. Rep. Lloyd Smucker of Pennsylvania changed his vote from "yes" to "no," he said, as a procedural move to allow Republicans to call the bill up again.

During the hearing, Roy fired a warning shot at Republican leaders, saying he opposes the bill as written because it will increase the deficit. “I have to now admonish my colleagues on this side of the aisle. This bill falls profoundly short. It does not do what we say it does with respect to deficits,” Roy said. “That’s the truth. Deficits will go up in the first half of the 10-year budget window and we all know it’s true. And we shouldn’t do that. We shouldn’t say that we’re doing something we’re not doing.”

“This bill has back-loaded savings and has front-loaded spending,” Roy added. “I am a no on this bill unless serious reforms are made today, tomorrow, Sunday. Something needs to change or you’re not going to get my support.” Afterthe vote tally was read, the HBC chair Jodey Arrington adjourned the hearing.

Negotiations with the GOP holdouts will continue in the coming days. The House Budget Committee announced it would reconvene to take up the bill again on Sunday at 10 PM. “You never know until you ask the question where people stand, which is the reason I called for a vote. You can’t accomplish anything in life without having deadlines and decisions,” Arrington told reporters afterward. “Today was a deadline and a decision, and it’s one of the decision points to get us to the successful passage of the reconciliation bill.”

But Smucker told reporters he hopes the legislation can pass committee by Monday, which would keep the House on track to approve the measure by the end of next week. “So, we’re working through some remaining issues here. There are just a few outstanding issues. I think everyone will get to yes,” Smucker said. In a post on X, the Freedom Caucus said its member will work through the weekend to reach a deal to pas the package.

Prior to Friday's committee meeting, Republican leaders conceded that changes would be needed for the bill to pass through the House, where the party holds a slim majority. In addition to the spending and deficit concerns from the right, a group of blue-state Republicans have called for a higher cap on the state and local tax deduction, or SALT. The house strength is now 220 to 215. With GOP hardliners crossing the aisles it's going to be a tough task for speaker Johnson to get the budget passed.

Across the aisle, Rep. Brendan Boyle, D-Pa., previewed the Republican divisions at the outset of the hearing, vowing that all Democrats would oppose it. “You will hear over the course of this hearing a vigorous debate. And frankly there is a strong divide between Republicans and some other Republicans. There is also a divide between both sets of Republicans and this side of the dais,” said Boyle, the top Democrat on the budget panel. “I can speak at least as to why every Democratic member will be voting no on the bill for billionaires.”

What are the factors that drive the US economy and the government's debt burden?. Is the US economy driving towards desired objectives? The answer is NO, it appears to be in the same stagnation period that Biden left it in and Trump instead of reducing the debt is only increasing it. And that is because he is not increasing the revenues which can offset the high cost of servicing the debts through increased revenues. Instead Trump wants to resort to tax cuts to increase his popularity base particularly among the super rich who contributed funds to his h victory in the 2024 Presidential elections. (IPA Service)