No More AAA - What the U.S. Debt Downgrade Means for Investors

Money For the Rest of Us

J. David Stein

Economy, Economics, Investing Podcast, Business, Investing

4.3 • 1.3K Ratings

🗓️ 21 May 2025

⏱️ 27 minutes

🔗️ Recording | iTunes | RSS

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Summary

With longer-term U.S. interest rates rising and no plan to reduce the budget deficit, is a U.S. national debt crisis imminent?

Topics covered include:

Why S&P, Fitch, and now Moody's stripped the U.S. of its pristine AAA debt rating
How the U.S. national debt dynamics compare to Greece, Italy, and Japan
What are four things investors should monitor for signs that the national debt crisis is worsening or spiraling out of control

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Show Notes

Moody's Ratings downgrades United States ratings to Aa1 from Aaa; changes outlook to stable—Moody's Ratings

Research Update: United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative—S&P Global

Interest Expense and Average Interest Rates on the National Debt FY 2010 – FYTD 2025—FiscalData.Treasury.gov

The Stark Math on the GOP Tax Plan: It Doesn’t Cut the Deficit by Richard Rubin—The Wall Street Journal

The Long-Term Budget Outlook: 2025 to 2055—Congressional Budget Office

Walmart says higher prices could hit this month due to tariffs by Natalie Sherman—BBC

Post on May 17th, 2025; 7:27 AM by Donald J. Trump—Truth Social

Walmart responds to Trump comment that retailer should ‘eat the tariffs’ by Kyler Swaim—The Hill

What’s behind Japan’s High Government Debt? by YiLi Chien and Ashley H. Stewart—Federal Reserve Bank of St. Louis

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Transcript

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0:00.0	Welcome to Money for the rest of us. This is a personal finance show on money, how it works,
0:05.1	how to invest it, and how to live without worrying about it. I'm your host, David Stein. Today is
0:10.7	Episode 525. It's titled, No More AAA, what the U.S. debt downgrade means for investors.
0:18.4	Last Friday, the credit rating agency Moody's downgraded the U.S. government
0:23.9	debt. It lowered it to AA1 from AAA. Moody's has a 21-notch rating system. The U.S. was at the
0:33.5	highest level. Now it's at its second highest level. In this episode, we'll explore
0:39.5	what this downgrade means and whether we should be concerned as investors. Now, I remember
0:46.1	when the S&P stripped the U.S. of its AAA rating in 2011. This was the first rating agency
0:53.9	to do so. It happened August 5th, 2011. I was still
0:58.2	working as an institutional asset manager. A few weeks earlier in July 2011, I had written and we had
1:05.4	published our second quarter 2011 market commentary. At the time, Congress had refused to raise the United States
1:13.4	legal borrowing limit, the debt ceiling, as it was working to negotiate spending cuts in an
1:19.0	attempt to reduce the budget deficit. Congress had previously up to then raised the debt ceiling
1:24.5	16 times, but negotiations were bogged down. The U.S. hit its borrowing
1:29.6	limit on May 16, 2011. Treasury Secretary Tim Geithner suspended contribution to federal
1:37.2	retirement funds and did other measures, basically, to allow the government to still function
1:43.2	without borrowing money. But by August 2,
1:46.6	the U.S. would be forced to default on its obligations. In that commentary, I wrote, comparisons to Greece's
1:55.7	debt situation are inevitable, but the differences between the U.S. and Greece could not be more stark. The U.S.
2:03.2	issues its own fiat currency, and its debts are denominated in that currency. That means it is
2:08.5	physically impossible for the U.S. to default on its debt unless it chooses to do so willingly.
2:14.2	It can also print more currency to make interest payments and pay down debt. The U.S.
	...

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