Posted originally on May 22, 2025 by Martin Armstrong 

US Treasury Secretary Scott Bessent rebuked Moody’s lowered rating of US credit from AAA to AA1. “First of all, I think that Moody’s is a lagging indicator, and I think that’s what everyone thinks of credit agencies,” Bessent said. “Larry Summers and I don’t agree on everything, but he’s said that when they downgraded the U.S. in 2011. So it’s a lagging indicator.”

The US Treasury Secretary must maintain that the nation’s economy is in sound health. Former Treasury Secretary Janet Yellen voiced similar sentiments last year when Fitch downgraded the US credit, calling the move “arbitrary.” “I strongly disagree with Fitch’s decision. The change announced today is arbitrary and based on outdated data,” Yellen insisted. She then went on to insist the federal government had the funds to back two wars in Ukraine and Palestine, as there is no spending limit for governments.

In 2011, Standard & Poor cut its rating also after a debt ceiling crisis caused by politicians. The global markets felt the impact of that news. Fitch has been warning of a possible downgrade since May 2023, due to the massive debt burden and political mismanagement. The White House continued its spending spree and our politicians could not agree on a limit for the debt ceiling. The warnings were there.

The difference this time is that Moody’s has not downgraded US credit since 1917. The issue is not consumer confidence in the US or even investor confidence. The primary concern is CONFIDENCE in the system itself that has clearly been failing. Over 70% of US debt is short-term, and Washington has been unable to pass or adhere to a budget. The Democrats are saying that this is reason to collect more tax revenue, while the Republicans aim to curb government spending. Both fail to realize that they are too late either way, and the system itself must change because the problem cannot be fixed with the same line of thinking that created this disaster in the first place.

Capital is not going to flee the US because of Moody’s downgrade. Where else would it go?

Ratings agencies are indeed reactionary rather than proactive. The debt crisis has been looming for a long time. The Economic Confidence Model turns again in late 2026, and we are watching the beginning of the end for government debt as a trustworthy asset class.