US Credit Rating Should Be Downgraded Following $1.5 Trillion Tax Cut

The United States should have its credit rating downgraded by Moody’s Investor Services, Finch’s Ratings, and Standard & Poor following the passage of a more than $1.5 trillion tax cut.  If the metrics of these credit rating agencies are to have any real meaning, the US should not be rated as a sound investment.  In the face of a potential $1 trillion 2018 Federal Deficit and Federal Debt well over $20 trillion, the US is on a path to fiscal disaster.  Although S&P did downgrade the US credit rating in 2011 for the first time, Moody’s has said it will likely only downgrade the US credit rating if the US defaults by missing interest payments.  The US government may not have defaulted on its debt obligations yet, but the politics and economics point to that very conclusion.

​The reason the US credit rating has not been downgraded is that US treasures are a sound investment relative to those of other countries and other private investments.  Unfortunately, US officials seem to believe they can fuel the US government and economy by tapping a limitless supply of debt to engineer a virtual economy disconnected from reality.  Because the US must continue to meet interest payments, however, the US government has a limit to the amount of debt it can amass and service.  That said, the US government will never reach that amount, because the US fiscal house will collapse once it can no longer provide services and service debt.  The US government cannot continue to collect tax revenue to pay interest on public debt to lenders, if it stops providing services.  After all, no one will tolerate paying taxes simply to fund investors.
 
As US incomes stagnated amid a ballooning cost of living, a number of individuals turned to credit, specifically credit cards, in order to sustained their lifestyles.  Before the 2010 Dodd-Frank Act blunted predatory lending practices and offered overwhelmed borrowers a straightforward recourse to resolve their debt issues, a number of Americans found themselves in perceptual debt cycles.  Because individuals could not afford to pay off the full balance of their debts, they eventually faced rising interest rates that prevented them from ever paying off their debt.  In other words, their incomes were being redistributed to banks due inflated interest rates.  If they defaulted on any of their debt, they faced higher fees and interest rates, which helped ensure they would default on the rest of their financial obligations, garnishments, and bankruptcy, if they were lucky.  If they did not default, the cost of their debt would force them into poverty.
 
The problem continues to exist for many US consumers, especially when it comes to student loans, but the US faces a similar scenario as a nation.  The US is trapped in a perpetual debt cycle that will continue to pad the pockets of banks and major investors until the US can no longer borrow more money.  If the US tries to break the cycle, it will pay higher rates, which will assuredly make it nearly impossible for the US to service its massive debt.  Unfortunately, the world cannot afford a US default as it would devastate the national and global economy, so investors will likely continue to buy US treasures, even if the US government is recognized as a bad investment.  It is a game of financial hot potato keeps the economy afloat.  No matter how productive the American People are and how strong the US GDP is, the US Debt will remain a tax on the US economy.
 
Because debt is a pretend asset, the simple true is that eventually someone will have to lose, so the US can avert a complete fiscal collapse of the US government.  The question is whether it will be US taxpayers or lenders.  During World War I and World War II, banks loaned large sums of capital to warring nations.  When the wars ended, they expected repayment from thoroughly devastated populations whose governments borrowed on their behalf.  Banks refused to discharge massive loans.  Instead, they taxed devastated economies and populations to near death.  In the wake of the 2008 Great Recession, banks also refused to take a financial hit on the bad loans they extended.  Instead, they allowed the US and global economy to suffer.  Loan modifications did help ease the burden of debt, but banks largely refused to write off debt, i.e. their perceived assets.  When it comes a US default, lenders will likely not accept any write-offs, even if it means a global economic catastrophe, but a US bankruptcy and/or debt discharge is precisely what will be needed.