After holiday in authoritarian Arabia, Trump returns to face Moody’s blues…
(Originally published May 19 in “What in the World“) Trump’s policies continue to torpedo America’s economic and financial strength.
In the latest evidence of diminishing U.S. appeal, ratings agency Moody’s joined its two competitors in dropping its AAA rating on the U.S. government’s debt. Thanks to soaring debt and perennial threats by Congress to shut down the government, S&P was the first to drop Washington’s AAA credit rating way back in 2011, with Fitch following in 2023. Moody’s kept the faith until Friday, citing Washington’s growing, $36 trillion in debt in withdrawing the top rating it has maintained on U.S. debt since 1919.
U.S. stocks look set to fall alongside the dollar, which on Monday resumed the slide that has taken it down almost 8% since Trump’s inauguration. Indeed, the downgrade appeared likely to end the recent rally and revive April’s “sell America” trade, which traders have now given its own acronym—ABUSA, for “Anywhere but the U.S.A.”
Moody’s apparently isn’t buying Trump’s promises to use tariffs and cuts to government services to offset tax cuts. “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration,” Moody’s said in announcing its ratings cut.
What will result, according to Moody’s? “…larger deficits as entitlement spending rises while government revenue remains broadly flat. In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher. The US’ fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.”
Trump’s evolving fiscal package is likely to lower taxes for everyone, with cuts to government benefits that help the less-affluent only partly paying for it. The result: the deficit gets bigger, the rich get richer, the poor get, well, shafted.
The continuing message from the White House? Suck it. As public faith in Trump’s economic policies crumbles, Treasury Secretary Scott Bessent is pouring fuel on the ire, warning that Washington may restore the insane, miscalculated, reciprocal tax on imports might return if trading partners don’t make sufficient concessions. The U.S. might even resort to region-level tariffs, he warned. His message to voters: prices will rise.
Meanwhile, Big Data’s burgeoning demand for power to fuel its energy-hungry data centers is also turning out to be economically regressive. A report by energy firm Woods McKenzie found that electricity bills paid by the hungriest users don’t cover the cost of the additional capacity needed to feed them. The result: utilities are raising their bills for their other customers. U.S. household power bills have climbed more than 22% in the past five years, and the growth of data centers is on track to boost U.S. power demand by 15% in the next four years. Lower-income families and smaller companies are likely to benefit from AI proportionately less than wealthier households and bigger companies that can afford to pay for premium AI services. So higher electricity bills likely represent yet another transfer of wealth from the poorest to the richest.