What Moody’s downgrade of U.S. credit rating means for your money{May 2025}

Cnbc ^ | 19th May 2025 | Annie Nova & Jessica Dinkler

[Cronos]

The debt downgrade put immediate pressure on bond prices, sending yields higher on Monday morning. The 30-year U.S. bond yield traded above 5% and the 10-year yield topped 4.5%

...Treasury bonds influence rates for a wide range of consumer loans like 30-year fixed mortgages, and to some extent also affect products including auto loans and credit cards.

“It’s really hard to avoid the impact on consumers,” said Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute.

...“When our credit rating goes down, the expectation is that the cost of borrowing will increase,” said Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C.

That’s because when “a country represents a bigger credit risk, the creditors will demand to be compensated with higher interest rates,” said Johnson, a member of CNBC’s Financial Advisor council.

“Think higher rates on mortgages, credit cards, and personal loans, especially if confidence in U.S. credit weakens further,” he said

...Before its downgrade, Moody’s was the last of the major credit rating agencies to have the U.S. at the highest possible rating.

Standard & Poor’s downgraded the nation’s credit rating in August 2011, and Fitch Ratings cut it in August 2023. “We’ve been through this before,” Rehling said

[Cronos]

Last week’s cut followed a downgrade by rating rival Fitch, which lowered the US credit score by one notch in 2023. Fitch was the second major rating agency to strip the US of its AAA rating after Standard & Poor’s did so in 2011.

Investors use credit ratings to assess the risk profile of companies and governments. The lower a borrower’s rating, the higher its financing costs.

Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said in a news release last week

[delta7]

Lower credit ratings means less buyers to buy our debt instruments, which means billions must be bought by the Fed, which means our national debt interest payments go up, which means our national debt goes to an unpayable $$$ 45 trillion plus.

It is called the debt death spiral….witnessed by countless nations in history.

[DUMBGRUNT]

But, but, but!!!

The new bill will raise the SALT deduction from 10K to 40K.

That will help! /never mind.

[Jacquerie]

<>Federal Reserve Chair Jerome Powell also recently noted that tariffs may slow growth and boost inflation.<>

Since 1925, the dollar lost 95% of its purchasing power.

Darn those tariffs these past hundred years. /s

We do not hate Congress enough.

[palmer]

In 1925 you could mail 350 first class letters for $7 As of July 2025 you'll be able to mail 9 first class letters for $7. A loss of 97.5% of purchasing power.

[Robert357]

I think one needs to look at this from a big picture basis.

Is the credit rating downgrade long over due? Yes. But is it as bad as the article says? Not really. The article is more about “bad Republicans not cutting spending” without saying Bad Republicans.

So what is going to happen? The article says interest rates will rise and that will make servicing the debt more difficult. Along with the tariffs slowing the economy.

My view is that the Fed, will need to start a whole new QE program and unleash the printing presses. The value of the US dollar will drop against foreign currencies initially. Tariffs (or reciprocal tariff reductions) will raise tax revenues and increase USA manufacturing and service exports.

This seems all good, except that I think that inflation or potentially deflation will have a huge impact on what people now feel they own. Government will want to have inflation so it can pay off the huge debt with “dollars” that are worth less, and so because of “graduated income taxes” it can collect more “cheap dollar” tax revenues from its citizens.

The question in my minds is will foreign wealth still feel that investing in the US economy a better bet than in other economies? Part of me says yes, because when you look at countries like Mexico, China, UK and EU (even Canada) our legal systems seems less corrupt (relatively from a business perspective). If Trump and his Administration make the structural federal changes he has promised we will become a lot less corrupt.

If a new block chain standard or petro/gold standard is developed for international trade, then I think that the US could face deflation, which would be hard on those who have traditional savings. The problem with “non-food commodities” and this includes homes and land is that their “value” is determined by the market place and what others are willing to pay. If few can afford to pay the energy costs and taxes on a home, it is worth almost nothing.

As the Chinese curse goes, we live in interesting times.