US Credit Rating was Downgraded, Expect Higher Interest Rates Longer

Aug 8, 2023

Fitch Ratings recently downgraded the US credit rating from AAA to AA+. Fitch stated the reasons for the downgrade included an "erosion of governance" on fiscal and debt matters, rising government deficits, and total government increase in debts. Fitch also expects a recession in late 2023 and ealy 2023. 

 

A lower credit rating equals higher borrowing costs. The federal government debt is currently over $32 trillion. The debt is about 113% of gross domestic product (GDP). Gross Domestic Product is the monetary value of all goods and services produced. In other words, the debt owed is more than the entire country produces in a year. If you or your business owed more than your gross annual income, you would not be in a strong financial position. The average company with a AAA credit rating owes less than 40% of their gross annual income.

 

The US federal debt owed per taxpayer is over $250,000, according to usdebtclock.org. The average taxpayer in the US earns about $60,000 gross annual income, according to the IRS. Assuming no further increase or interest charges, it would take over 4 years to pay off the federal debt if every taxpayer contributed all of their gross annual income. This level of debt clearly is unsustainable and detrimental to future economic activity.

 

The long-term solution is to educate enough Americans to vote for representatives that will take fiscal responsibility seriously. Failure to do so will result in increasingly negative economic consequences.

 

The US credit rating downgrade will increase the interest rates the government will have to pay. Due to the massive size of the debt, most borrowing costs will increase. This will cause higher interest rates.

 

The best things financially you can do until fiscal sanity returns to the government is:

1. Do not pay off low interest rate debt early - low borrowing costs are unlikely to return in the near future

2. Reduce/and or eliminate any high interest debt

3. Create a tax-free bucket of money - as interest costs increase, the government will be pressured to increase tax revenues to pay the interest

3. Invest in assets that are interest rate sensitive (ei: bank savings, CD'd, bonds, dividend assets)

 

Your Personal Bank is an interest rate sensitive asset that grows and can be accessed on a tax-free basis with guarantees. Returns are expected to increase for the next several years due to the increased interest rates.

 

Contact Ferenc at YourPersonalBank.com or 866-268-4422 for more info.