fitch

The Establishment Supposedly Outraged at Fitch

Fitch Ratings is a debt evaluation firm that downgraded the United States credit worthiness this past week to AA+ from AAA. The market wasn’t happy with Nasdaq falling 2.17 points, S&P 500 down 1.38 and the Dow dropped a notch. Two other ratings firms haven’t changed, S&P Global Ratings and Moody’s. S&P had dropped their rating in 2011 and it stayed there. Moody’s still rates us at AAA.

Fitch explained itself

The firm put out a statement:

“We expect the general government (GG) deficit to rise to 6.3% of GDP in 2023, from 3.7% in 2022, reflecting cyclically weaker federal revenues, new spending initiatives and a higher interest burden. Tighter credit conditions, weakening business investment, and a slowdown in consumption will push the U.S. economy into a mild recession. The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”

This wasn’t done in a vacuum. Fitch expects this to continue into next year based on recent events and what that means for the future.

Treasury Secretary Yellen disagrees

She says the decision is based on outdated data and that we’re doing great.

“I strongly disagree with Fitch Ratings’ decision. The change by Fitch Ratings announced today is arbitrary and based on outdated data.  Fitch’s quantitative ratings model declined markedly between 2018 and 2020 — and yet Fitch is announcing its change now, despite the progress that we see in many of the indicators that Fitch relies on for its decision.”

The media called on professional economists of the same class, or those who disagree with reliable data-driven forecasts, especially when said forecast calls their own profession into question. One outlet in particular, the BBC, mentioned former Harvard president and Obama Treasury Secretary Larry Summers who tweeted that Fitch’s decision was “bizarre and inept.”

Fitch is on the level

In comparison to Summers. He was a failure at Harvard and left. Bizarre and inept apply to Summers instead. Mohamed El-Erian was also quoted as calling the decision “strange”. El-Erian was the chief economic adviser at financial services giant Allianz. What the BBC left out was that El-Erian was part of that “erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades” that Fitch cited. He was part of Obama’s Global Development Council from 2012 to 2017.

The BBC also spoke with Paul Krugman who said, “The biggest economic news over the past year has been America’s remarkable success at getting inflation down without a recession.” Krugman endorsed Clinton when she ran against Trump in 2016.

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