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A Fitch Ratings analyst on Tuesday warned the agency may be forced to cut the credit ratings of more than a dozen banks, including some major Wall Street lenders.
Another one-notch downgrade of the industry's score, to A+ from AA-, would force Fitch to reassess ratings on each of the more than 70 U.S. banks it covers, analyst Chris Wolfe told CNBC.
The news comes just one week after Moody's announced it had lowered the ratings of 10 banks by one notch amid concerns over higher interest rates, rising funding costs and increased risk from the commercial real estate sector.

A Fitch Ratings analyst on Tuesday warned the agency may be forced to cut the credit ratings of more than a dozen banks, including some major Wall Street lenders.

Fitch already lowered the score of the "operating environment" for U.S. banks to AA- from AA at the end of June – a move that went largely unnoticed.

In making that decision, the agency cited downward pressure on the country's sovereign debt rating, gaps in regulatory framework around the "normalization of monetary policy," and uncertainty over the future outlook for interest rates.

"We do not expect the lower OE score to negatively impact the ratings of U.S. banks, although it reduces ratings headroom," Fitch said at the time, but it added: "A multi-notch downgrade would revise Fitch’s financial performance benchmarks for banks and would lead to lower financial profile scores, all else equal."

Another one-notch downgrade of the industry's score, to A+ from AA-, would force Fitch to reassess ratings on each of the more than 70 U.S. banks it covers, analyst Chris Wolfe told CNBC. That could mean banking giants like JPMorgan Chase and Bank of America see a credit cut, because banks cannot have a higher credit rating than the system in which they operate.

"If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions," Wolfe said.

The news comes just one week after Moody's announced it had lowered the ratings of 10 banks by one notch amid concerns over higher interest rates, rising funding costs and increased risk from the commercial real estate sector. Among the firms that had their ratings cut were M&T Bank, Pinnacle Financial, BOK Financial, Webster Financial, Old National Bancorp and Fulton Financial.

"U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets," Moody’s analysts said of the decision.

Moody's also placed six banking giants – including U.S. Bancorp, Bank of New York Mellon and Truist Financial – on review for potential downgrades.

"Many banks' second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital," the firm said. "This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline, with particular risks in some banks’ commercial real estate (CRE) portfolios."

The outlook of 11 other banks, including Capital One, Citizens Financial and Fifth Third Bancorp, was also changed to negative.

Regional banks were at the epicenter of recent upheaval within the financial sector after the stunning collapse of Silicon Valley Bank and Signature Bank triggered a deposit run in early March.

Authorities rushed to shore up confidence in the banking system with the launch of several emergency measures, but Moody's warned that banks with sizable unrealized losses that are not reflected in their regulatory capital ratios remain "vulnerable to a loss of investor confidence."

The downgrade comes in the midst of the most aggressive monetary policy tightening campaign in decades. The Federal Reserve in July approved another interest rate hike, lifting the benchmark rate to the highest level since 2001.

Story by Megan Henney - Redacted bullet points by Jody Davis https://www.foxbusiness.com/economy/fitch-warns-multiple-us-banks-face-credit-downgrade-report

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Indian Oil Corp. used the local rupee to buy one million barrels of oil from the Abu Dhabi National Oil Company — not the U.S. dollar.
First, the two giants agreed to settle trade in their local currencies — in an effort to cut transaction costs and eliminate dollar conversions.
India and the UAE are by no means alone in trying to reduce their reliance on the dollar. Powerful nations across the world — particularly China and Russia — are keen to dethrone the dollar.
This trend — deemed “de-dollarization” — has gained such sway that some are questioning whether the dollar’s days of dominance are over.
Central banks worldwide have been starting to ditch their dollar reserves in favor of gold.

India and the United Arab Emirates (UAE) have officially started trading with each other in their local currencies.

The Indian government announced on Monday that the country’s leading petroleum refiner, Indian Oil Corp., used the local rupee to buy one million barrels of oil from the Abu Dhabi National Oil Company — not the U.S. dollar.

Trade talks

Last year, India’s central bank revealed a new framework for settling global trade in rupees — an idea that came into fruition last month, when India is the world’s third biggest oil importer and consumer signed two agreements with the UAE.

First, the two giants agreed to settle trade in their local currencies — in an effort to cut transaction costs and eliminate dollar conversions. They also agreed to set up a real-time payment link to simplify cross-border money transfers.

The agreements will enable “seamless cross-border transactions and payments, and foster greater economic cooperation,” the Reserve Bank of India explained in a weekend statement.

De-dollarization trend

India and the UAE are by no means alone in trying to reduce their reliance on the dollar. Powerful nations across the world — particularly China and Russia — are keen to dethrone the dollar in response to aggressive U.S. sanctions and foreign policy plays.

This trend — deemed “de-dollarization” — has gained such sway that some are questioning whether the dollar’s days of dominance are over. But Treasury Secretary Janet Yellen said no currency currently exists that could displace the greenback.

Yellen’s reassurance follows an 8% decline in the dollar’s share of global reserves in 2022. In an effort to diversify, central banks worldwide have been starting to ditch their dollar reserves in favor of gold.

Story by Bethan Moorcraft - Redacted bullet points by Jody Davis https://moneywise.com/news/top-stories/india-buys-oil-from-uae-using-rupees-not-us-dollars

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In the two months since then, the national debt — which measures what the U.S. owes its creditors — has surged to roughly $32.69 trillion as of Friday afternoon.
The unrelenting increase is what prompted Fitch Ratings to issue a surprise downgrade of the nation's long-term credit score in early August.
"America’s fiscal outlook is more dangerous and daunting than ever, threatening our economy and the next generation," said Michael Peterson.
Even more worrisome is that the spike in interest rates over the past year and a half has made the cost of servicing the national debt more expensive.
That is because as interest rates rise, the federal government's borrowing costs on its debt will also increase.
Payments are expected to triple from nearly $475 billion in fiscal year 2022 to a stunning $1.4 trillion in 2032.
"We are clearly on an unsustainable fiscal path," said Maya MacGuineas, the president of CRFB.

This debt is unsustainable: Robert Kiyosaki
Best-selling author of 'Rich Dad Poor Dad' Robert Kiyosaki says the Federal Reserve is 'way behind the eight ball' on 'Making Money.'

The U.S. national debt has shown no signs of slowing down since it surpassed a historic $32 trillion milestone in June.

In the two months since then, the national debt — which measures what the U.S. owes its creditors — has surged to roughly $32.69 trillion as of Friday afternoon. By comparison, just four decades ago, the national debt hovered around $907 billion.

The unrelenting increase is what prompted Fitch Ratings to issue a surprise downgrade of the nation's long-term credit score in early August. The agency cut the U.S. debt by one notch, snatching away its pristine AAA rating in exchange for an AA+ grade. In making the decision, Fitch cited alarm over the country's deteriorating finances and expressed concerns over the government's ability to address the ballooning debt burden amid sharp political divisions.

"This is a warning shot across the U.S. government's bow that it needs to right its fiscal ship," Sean Snaith, an economist at the University of Central Florida, told FOX Business. "You can't just spend trillions of dollars more than you have in revenue every year and expect no ill consequences."

The outlook for the federal debt level is bleak, with economists increasingly sounding the alarm over the torrid pace of spending by Congress and the White House.

The latest findings from the Congressional Budget Office indicate that the national debt will nearly double in size over the next three decades. At the end of 2022, the national debt grew to about 97% of gross domestic product. Under current law, that figure is expected to skyrocket to 181% at the end of 2053 — a debt burden that will far exceed any previous level.

Should that debt materialize, it could risk America's economic standing in the world.

"America’s fiscal outlook is more dangerous and daunting than ever, threatening our economy and the next generation," said Michael Peterson, the CEO of the Peter G. Peterson Foundation that advocates for reducing the federal deficit. "This is not the future any of us want, and it’s no way to run a great nation like ours."

The spike in the national debt comes after a burst of spending by President Biden and Democratic lawmakers. As of September 2022, Biden had already approved roughly $4.8 trillion in borrowing, including $1.85 trillion for a COVID relief measure dubbed the American Rescue Plan and $370 billion for the bipartisan infrastructure bill, according to the Committee for a Responsible Federal Budget (CRFB), a group that advocates for reducing the deficit.

While that is about half of the $7.5 trillion that former President Donald Trump added to the deficit while he was in office, it's far more than the $2.5 trillion Trump had approved at that same point during his term.

Biden has repeatedly defended the spending by his administration and boasted about cutting the deficit by $1.7 trillion.

"I might note parenthetically: In my first two years, I reduced the debt by $1.7 trillion. No President has ever done that," Biden said recently.

However, that figure refers to a reduction in the national deficit between fiscal years 2020 and 2022; while the deficit did shrink during that time period, that is largely because emergency measures put into place during the COVID-19 pandemic expired.

The White House did not immediately respond to a FOX Business request for comment.

Pie Chart of who owns most Gov Debt 8-23

Even more worrisome is that the spike in interest rates over the past year and a half has made the cost of servicing the national debt more expensive.

That is because as interest rates rise, the federal government's borrowing costs on its debt will also increase. In fact, interest payments on the national debt are projected to be the fastest-growing part of the federal budget over the next three decades, according to the CRFB.

Payments are expected to triple from nearly $475 billion in fiscal year 2022 to a stunning $1.4 trillion in 2032. By 2053, the interest payments are projected to surge to $5.4 trillion. To put that into perspective, that will be more than the U.S. spends on Social Security, Medicare, Medicaid and all other mandatory and discretionary spending programs.

"We are clearly on an unsustainable fiscal path," said Maya MacGuineas, the president of CRFB. "We need to do better."

Story by Megan Henney - Redacted bullet points by Jody Davis https://www.foxbusiness.com/economy/us-national-debt-tracker

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The number of people making “hardship” or emergency withdrawals from their 401(k) plans is soaring despite low unemployment and rising real wages…
Withdrawals in the April-to-June second quarter leaped an astonishing 36% compared to the same three months a year earlier…
Investment giant Vanguard, which recently revealed that hardship withdrawals among its clients “hit a new high” last year after rising 42%.
the Federal Reserve reveals that consumer credit card debts have just topped $1 trillion for the first time.
If this is happening during a boom, what will the picture look like when the U.S. next enters a recession?

The number of people making “hardship” or emergency withdrawals from their 401(k) plans is soaring despite low unemployment and rising real wages, a new report from Bank of America reveals.

Withdrawals in the April-to-June second quarter leaped an astonishing 36% compared to the same three months a year earlier, the bank says, citing data from company benefit plans for which Bank of America keeps the records. Those plans cover four million participants, it says. Withdrawals had also risen 12% from the first quarter.

The number of people taking loans from their 401(k) plans also rose.

The overall figures involved are still quite small: Just 0.52% of 401(k) participants, or roughly one in 200, took withdrawals during the second quarter. The number of account holders borrowing from their 401(k) was 2.5%. But the trend is ominous for the economy and for America’s retirement savings, because it comes during an almost unprecedented boom.

The unemployment rate is currently just 3.5%, around levels typically associated with the Eisenhower or Johnson eras. There are five job openings for every three unemployed workers.

The Bank of America data confirm a trend previously identified by investment giant Vanguard, which recently revealed that hardship withdrawals among its clients “hit a new high” last year after rising 42%.

And the news on 401(k) withdrawals comes as the Federal Reserve reveals that consumer credit card debts have just topped $1 trillion for the first time.

If this is happening during a boom, what will the picture look like when the U.S. next enters a recession?

Vanguard found that a third of hardship withdrawals were made to pay for medical costs, while 36% were used to avoid foreclosure or eviction.

Matt Watson, chief executive and founder of financial wellness platform Origin, says many consumers are stretched because of the surge of inflation in 2021 and 2022.

“You’ve seen real wages underperform with respect to inflation over the last 24 months,” he says. While wages recently have begun rising faster than inflation, he thinks it may take time for consumers to repair their balance sheets.

All withdrawals from 401(k) plans are a problem because the money is supposed to stay in the plan and compound over the long term in order to support your retirement. Watson points out that every dollar withdrawn from a 401(k) plan today is $5 or $10 or more withdrawn from your retirement balance in the future when you’ll need it. Money in a 401(k) plan also comes with a special protection that doesn’t apply to most other assets: Creditors can’t touch it if you get into financial difficulties or, in a worst-case scenario, end up in bankruptcy.

But for those in extremis, there are two ways of getting money out of your 401(k) if you need it, or feel you need it, right now. One is by taking a loan, typically to be repaid within five years. Not all plans allow loans. The maximum allowed by law is the smaller of 50% of the balance or $50,000. The other is to take a hardship withdrawal, allowed in certain circumstances if you are in financial need.

Withdrawals are taxed as income, and in most cases, you have to pay a 10% penalty on top if you are under 59½. Loans are not treated as a taxable distribution so long as the money is repaid on schedule.

“The loan is effectively a free option because if you are able to pay it back you don’t have that 10% penalty,” says Watson. “Hardship withdrawals are truly a measure of last resort.”

Story by Brett Adrends - Redacted bullet points by Jody Davis https://www.marketwatch.com/story/ominous-news-as-401-k-hardship-withdrawals-rocket-ac2fa9c1?mod=home-page

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Fitch Ratings’ decision to strip the U.S. of its triple-A credit rating last week was widely dismissed as meaningless
This time, though, bond yields rose. That suggests Fitch’s action deserves our attention, not because it tells us anything new but because it joins the stack of evidence of how profoundly different, and risky, the nation’s fiscal situation is now.
Instead, the Congressional Budget Office on Tuesday upped its estimate of this year’s deficit to $1.7 trillion, or 6.5% of GDP
The second takeaway is that interest rates have gone from a stabilizing to a destabilizing factor for government finances.

U.S. debt is in much riskier territory than when S&P lowered its rating in 2011

The Biden administration criticized Fitch’s decision to downgrade the U.S. credit rating, which the rating agency said was based on political dysfunction. WSJ Asia Markets Editor Matthew Thomas outlines reaction to the decision. Photo: Saul Loeb/AFP

Fitch Ratings’ decision to strip the U.S. of its triple-A credit rating last week was widely dismissed as meaningless. After all, Standard & Poor’s had done the same back in 2011 and bond yields declined—implying more, not less, appetite for Treasury debt.

This time, though, bond yields rose. That suggests Fitch’s action deserves our attention, not because it tells us anything new but because it joins the stack of evidence of how profoundly different, and risky, the nation’s fiscal situation is now.

The risk isn’t of a debt crisis that locks the U.S. out of the markets, as happened to Greece in 2010 or Mexico in 1994; that is virtually impossible for a mature country that borrows in its own currency. The risk, rather, is of deficits and interest rates feeding back on each other at growing cost to both economic growth and taxpayers.

Federal budget deficits can’t be viewed in isolation. When S&P downgraded the U.S. back in 2011, the deficit was equivalent to 8.4% of gross domestic product, close to a post-World War II high. But in the wake of the 2007-09 recession, such deficits were both easy to finance and necessary. Private investment was subdued, unemployment at 9%, underlying inflation below the Federal Reserve’s 2% target and interest rates stuck at around zero.

Without federal borrowing, all of that—a combination later labeled “secular stagnation”—would have been worse.

Goodbye, global saving glut

Today’s circumstances are just the opposite. Private investment is healthy, unemployment near a 53-year low at 3.5%, and interest rates above 5% as the Fed combats inflation roughly double its 2% target. No one talks about secular stagnation now. This is when spending restrictions and tax increases should be in vogue.

Instead, the Congressional Budget Office on Tuesday upped its estimate of this year’s deficit to $1.7 trillion, or 6.5% of GDP, compared with 5.5% last year. In May, President Biden struck a deal with House Republicans that barely alters the trajectory of rising debt.

The variable that best captures the change in circumstances is the real Treasury yield—what investors expect to earn on a 10-year note after inflation. It was around zero in August 2011, soon to go negative. Today, it is 1.7%, near the highest since 2009.

American Exceptionalism

Deficits and debt interest of countries rated AAA or AA, 2023 estimate

One takeaway is that the global saving glut—the wall of money in search of safe assets that kept yields down a decade ago—is no more. The Fed, which was buying bonds to hold down interest rates back then (“quantitative easing”) is now disposing of those bonds (“quantitative tightening”).

Adding central bank transactions and new government borrowing, independent economist Phil Suttle estimates private investors will be asked to absorb government debt worth 7.7% of developed economies’ GDP this year and 9.2% next, more than double the 4.3% of 2011. Private borrowers thus face competition from governments for capital, which in the long run hurts investment and growth. We got a taste of that last week when yields jumped on news of larger-than-expected quarterly Treasury auctions.

Of course, more than government borrowing is putting upward pressure on bond yields. So is inflation and the perception the Fed will have to keep short-term rates high to push it down. But the two are related: Investors may worry that a future government uses inflation to reduce the real value of its debts, which raises interest rates today.

From debt stabilizer to destabilizer

The second takeaway is that interest rates have gone from a stabilizing to a destabilizing factor for government finances. When the real interest rate is below the rate of future economic growth, the debt tends to fall relative to GDP. In 2011, that gap reached 2.5 percentage points.

Because this made debts more sustainable, it is one reason governments felt no pressure to reduce them. Indeed, it was part of the mind-set that led the Biden administration to implement a blowout $1.9 trillion stimulus package in 2021.

Today, with rates higher and future growth lower than in 2011, the gap between real rates and growth is around zero. That makes interest expense a growing source of deficits, climbing from 1.9% of GDP last year to 3.7% in 2033, according to the CBO.

One reason for Fitch’s downgrade was the absence of any political will to deal with the main drivers of the deficit: spending programs for older Americans, including Social Security and Medicare, and repeated cuts to tax rates for most households.

Fitch noted how much worse U.S. fiscal metrics are than its peer countries. To give one example: The U.S. is on track to spend 10% of federal revenue on interest by 2025, compared with just 1% for the average triple-A-rated country and 4.8% for double-A-rated. Why, then, isn’t the U.S. rating even lower? Because the reserve status of the dollar and the size and safety of Treasury debt gives the U.S. unprecedented borrowing ability.

Indeed, it was hard to get presidents or Congress to worry about the deficit when interest rates were low. Today, a bond market signaling that the world is no longer safe for deficits may be the first step to tackling them.

Story by Greg Ip - Redacted bullet points by Jody Davis https://www.wsj.com/articles/fitch-downgrade-us-credit-rating-4ad98230

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De-dollarization could lead to a vicious cycle of economic destruction, according to an Australian economic think tank.
That's because waning use of the dollar could bring on hyperinflation, researcher Michael Roach said.
Hyperinflation could lead to higher interest rates, which will weigh on asset prices, according to Roach.
This outlook is furthered by speculation that BRICS nations could potentially launch a rival currency to the US dollar, backed by gold, Roach said.

The use of the US dollar as a reserve currency is under threat — and the greenback is headed for a vicious cycle that will further erode its dominance, according to the Australian think tank the Lowy Institute.

That's because the declining use of the dollar could lead to hyperinflation, which would, in turn, lead to higher interest rates as central banks combat high prices. And those rate hikes will weigh on asset prices like stocks, researcher Michael Roach said in a recent op-ed for The Interpreter, a publication run by the think tank.

This outlook is furthered by speculation that BRICS nations could potentially launch a rival currency to the US dollar, backed by gold, Roach said, though such plans have been disputed. Nations like China, Russia, and Saudi Arabia have also started to shift away from the use of the dollar in global trade, which could further weaken the dollar's dominance.

Meanwhile, the US Dollar Index, which weighs the greenback against a basket of other currencies, has declined 4% over the last year, signaling the dollar's decline in purchasing power. Interest rates in the economy are also at their highest level since 2001 as the Fed continues to monitor high inflation.

"The trend of de-dollarization is occurring — but it is not something unique," Roach said, pointing to previous dominant currencies that were later replaced, like the British sterling. "There will inevitably be a shift in the world order, and it may well be the BRICS' time."

But some experts have disputed the de-dollarization trend, making the case that the phenomenon is more based in fear than reality. Though the use of the dollar in global transactions and central bank reserves has declined in recent years, the greenback still by far beats the use of any other currency, economic data shows.

The dollar accounted for at least one side in 6.6 million transactions in April 2022, according to Bank of International Settlements data, meaning it has a role in 88% of all global trade. Meanwhile, dollar reserves accounted for 54% of all foreign exchange reserves in the fourth quarter of 2022, according to the International Monetary Fund.

Story by Jennifer Sor - Redacted bullet points by Jody Davis https://markets.businessinsider.com/news/currencies/dollar-dominance-dedollarization-inflation-brics-rival-currency-war-interest-rates-2023-8

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The unemployment rate peaked at 14.7 percent, the highest in the post-World War II period.
Inflation reached its highest rate in 40 years, prompting the Fed to raise short-term interest rates to their highest levels since 2007.
Federal Reserve banks opened for business in November of 1914.
Historical CPI data from MeasuringWorth show that the US price level rose by 2,920.2 percent from 1914 through 2022.
Before the Fed, the purchasing power of the dollar was determined by the supply of and demand for gold. Consequently, the purchasing power of the dollar was relatively stable.
That's approximately zero percent inflation over 130 years compared to 3,000 percent inflation in less than 90 years under the Fed.

The US economy was pushed to extremes during the pandemic recession and subsequent recovery. The unemployment rate peaked at 14.7 percent, the highest in the post-World War II period. Inflation reached its highest rate in 40 years, prompting the Fed to raise short-term interest rates to their highest levels since 2007.

As of June, the economy hit another dubious milestone: Inflation has now reached 3,000 percent under the Federal Reserve.

Inflation Under the Fed

The Federal Reserve Act was passed by Congress in December of 1913, and the regional Federal Reserve banks opened for business in November 1914. Comparing the price level at the end of 1914 to the level today tells us how much total price inflation the US economy has experienced under the Fed.

The consumer price index (CPI) is the most widely used and longest-running measure of the US price level, but there are disagreements about the accuracy of historical CPI. MeasuringWorth aggregates macroeconomic data such as interest rates, economic production, and the price level from the most reliable historical sources.

Historical CPI data from MeasuringWorth show that the US price level rose by 2,920.2 percent from 1914 through 2022.

While the MeasuringWorth dataset provides only annual data, we can add monthly data for the current year from the official CPI data from the Bureau of Labor Statistics (BLS). According to BLS data, the CPI rose by 2.74 percent (not seasonally adjusted) in the first half of 2023.

That brings total inflation under the Fed to 3,000.2 percent.

Compared to What?

US inflation was not always as persistently high as it has been under the Fed. Before the Fed, the purchasing power of the dollar was determined by the supply of and demand for gold. Consequently, the purchasing power of the dollar was relatively stable.

Figure 1. Index of the US price level, 1774-2022

Figure 1 shows the US price level back to 1774. After a brief turmoil during the American Revolutionary War, the price level was about the same in 1784 as it was in 1914.

That's approximately zero percent inflation over 130 years compared to 3,000 percent inflation in less than 90 years under the Fed.

Official Statistics

The MeasuringWorth dataset combines data from the best historical research to correct for shortcomings in the official economic data.

One key difference from the BLS CPI is that, for the early years of the Fed, MeasuringWorth uses a study by Paul Douglas, which fills in a few months of data missing from the BLS and "computes the US index as a population-weighted average of the city indexes, whereas BLS uses an unweighted average."

How different are the MeasuringWorth data from the official BLS statistics? Using the official CPI data, inflation under the Fed has been only 2,952 percent since 1914. But don't worry, we'll hit 3,000 percent on the official measure soon enough.

Story by Thomas L. Hogan - Redacted bullet points by Jody Davis https://www.aier.org/article/the-fed-hits-3000-percent-inflation/

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Ratings agency Fitch on Tuesday downgraded the U.S. government's top credit rating to AA+ from AAA, citing an expected fiscal deterioration over the next three years as well as a high and growing general government debt burden.
"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025," the rating agency said.
In a previous debt ceiling crisis in 2011, Standard & Poor's cut the U.S. top 'AAA' rating by one notch a few days after a debt ceiling deal, citing political polarization and insufficient steps to right the nation's fiscal outlook. Its rating is still 'AA-plus'.
After the S&P downgrade, U.S. stocks tumbled and the impact of the rating cut was felt across global stock markets, which were at the time already in the throes of a financial meltdown in the eurozone. Paradoxically, U.S. Treasuries prices rose because of a flight to quality from equities.

Aug 1 (Reuters) - Ratings agency Fitch on Tuesday downgraded the U.S. government's top credit rating to AA+ from AAA, citing an expected fiscal deterioration over the next three years as well as a high and growing general government debt burden.

The dollar ticked lower following the downgrade, which came two months after Democratic President Joe Biden and the Republican-controlled House of Representatives reached a debt ceiling agreement after months of political brinkmanship. The deal lifted the government's $31.4 trillion debt ceiling.

"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025," the rating agency said in a statement.

U.S. Treasury Secretary Janet Yellen said she disagreed with Fitch's downgrade, in a statement that called it "arbitrary and based on outdated data."

Investors use credit ratings to assess the risk profile of companies and governments when they raise financing in the debt capital markets.

“This was unexpected, kind of came from left field," said Keith Lerner, Co-Chief Investment Officer, Truist Advisory Services, Atlanta. "As far as the market impact is concerned, it's uncertain right now. The market is at a point where it’s somewhat vulnerable to bad news...”

The dollar moved lower against a basket of major currencies after the announcement. U.S. stock index futures had yet to resume trading.

In a previous debt ceiling crisis in 2011, Standard & Poor's cut the U.S. top 'AAA' rating by one notch a few days after a debt ceiling deal, citing political polarization and insufficient steps to right the nation's fiscal outlook. Its rating is still 'AA-plus' - its second highest.

After the S&P downgrade, U.S. stocks tumbled and the impact of the rating cut was felt across global stock markets, which were at the time already in the throes of a financial meltdown in the eurozone. Paradoxically, U.S. Treasuries prices rose because of a flight to quality from equities.

In May, Fitch had placed its "AAA" rating of U.S. sovereign debt on watch for a possible downgrade, citing downside risks including political brinkmanship and a growing debt burden.

Reporting by Jyoti Narayan in Bengaluru, Davide Barbuscia in New York; Editing by Megan Davies, Arun Koyyur and David Gregoiro

Story by Jyoti Narayan in Bengaluru, & David Barbuscia in New York. Redacted shorter to keep to important points and bullet points added by HGG https://www.reuters.com/markets/us/fitch-cuts-us-governments-aaa-credit-rating-by-one-notch-2023-08-01/

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“There is no chance we’re having a soft landing in the context of the most pernicious tightening by the Fed since the Paul Volcker years,” Rosenberg says.
It’s equally interesting to hear Dimon talk about how great things are when the pace of bank lending, in the aggregate, is heading towards negative territory on a year-to-year growth basis for the first time since we pulled out of the Great Financial Crisis.
What have the banks been adding to their balance sheet? Cash assets. So as the bankers show a “What, me worry?” face on television, what they’re doing is shifting their balance sheet from nonliquid assets, which are basically private-sector loans, towards cash. The banks are rapidly building liquidity, which is telling you that behind closed doors they are more concerned than they’re letting on.
Then you have to ask, what is going on with the U.S. dollar if things in America are so hunky-dory?

The Federal Reserve and its chair, Jerome Powell, will end rate hikes soon, but the economic damage has been done, David Rosenberg says.

The stock market seems to be the odd man out.

It’s said that you don’t know an economy is in a recession until it’s in one. Or as David Rosenberg puts it: “Recessions are like an odorless gas. They sneak up on you.”

These days, Rosenberg is looking for fresh air. A former chief North American economist at Merrill Lynch and now president of Toronto-based Rosenberg Research, Rosenberg sees the U.S. Federal Reserve ending its rate hikes soon — but says the economic damage has been done. He expects U.S. businesses and consumers to cut spending, unemployment to rise, and companies and consumers to turn increasingly cautious as the U.S. economy slips into recession.

And, for anyone who is convinced that the Fed will pull off an economic “soft landing,” Rosenberg has two words: Dream on.

“There is no chance we’re having a soft landing in the context of the most pernicious tightening by the Fed since the Paul Volcker years,” Rosenberg says.

In a recent interview with MarketWatch, which has been edited for clarity, Rosenberg gives the Fed no credit — and no mercy. He elaborates on the sobering investment and economic themes and topics he discussed in a late April MarketWatch interview, and says recession is unavoidable.

With that in mind, Rosenberg steers investors into defensive, rate-sensitive areas of the stock market, including utilities, consumer staples and REITs. In the bond market, he advocates a “barbell” approach that positions a portfolio in both short- and long-term securities.

MarketWatch: U.S. Treasury Secretary Janet Yellen says she doesn’t expect a recession. J.P. Morgan Chase JPM, -0.49% CEO Jamie Dimon says U.S. consumers are in good shape. What does your crystal ball say?

Rosenberg: Janet Yellen is a politician. Why would she ever be calling for a recession? So we want to fade her views on the macro scene. She has a clear bias. And if I were in her shoes I would be saying the exact same thing.

It’s interesting to hear Jamie Dimon talk about how great a shape the U.S. consumer is in when we are seeing delinquency rates rise across virtually [the entire] gamut of the household borrowing space. It’s equally interesting to hear Dimon talk about how great things are when the pace of bank lending, in the aggregate, is heading towards negative territory on a year-to-year growth basis for the first time since we pulled out of the Great Financial Crisis. These bank CEOs may not be politicians, but they are quasipoliticians.

So to talk to me about what politicians are saying is a waste of time. To hear what bankers are saying on television, because they are quasipoliticians, is almost an equal waste of time. Look at the data. While we did escape the worst possible situation, which would have been systemic financial risk coming out of the banking crisis last winter, saved yet again by the Fed’s omnipresent, ubiquitous balance sheet, we are still heading into a period of significant tightening in bank lending guidelines. You’re seeing that because, even as deposits have started to stabilize over the past two months, bank credit has been contracting.

What have the banks been adding to their balance sheet? Cash assets. So as the bankers show a “What, me worry?” face on television, what they’re doing is shifting their balance sheet from nonliquid assets, which are basically private-sector loans, towards cash. The banks are rapidly building liquidity, which is telling you that behind closed doors they are more concerned than they’re letting on.

MarketWatch: You’ve been predicting a sharp U.S. economic downturn for a long time now, and yet the stock market keeps going up. How do you explain this, and what keeps you confident about your base case?

Rosenberg: Are you really asking me to fit my narrative into what the stock market is doing? The S&P 500 SPX, -0.27% peaked in September 2000; the recession that nobody saw coming started in March 2001. The stock market peaked in October 2007; the recession that nobody saw coming began in December, two months later.

In October of 2007 I was chief economist at Merrill Lynch. On Oct. 9 of that year, which was when the U.S. stock market hit its peak, I gave a presentation to the Federal Reserve in Washington. I was calling for a recession. The head honcho at the Fed who hosted me said, “Mr. Rosenberg, are you aware that the S&P 500 hit a new all-time high today, and here you’re talking about a recession.”

Can you imagine what would have happened if I changed my forecast because of what the S&P 500 did in October 2007? Should I have based my forecast on where I thought the stock market was going to be in October 2008? So the fact that we now have a speculative frenzy, animal spirits coming back and driving up the multiple in the stock market is just a stock-market story. It’s not telling you an economic story.

If there was truly a wave of inflationary growth coming, the 10-year Treasury TMUBMUSD10Y, 4.032% yield would be closer to 5% than 3.8%. We would be having a boom in commodity prices. If we were in some sort of domestic-demand-induced economic boom, why would the U.S. dollar DX00, -0.21% be moving into a bear market?

Think of the ridiculous situation we’re in. The Fed is pegging the funds rate in a 5.25% to 5.5% range. The 10-year Treasury yields 3.8%. What is the bond market telling you? The bond market is not telling you the same goldilocks story the stock market is telling you. When we look at the action in most raw industrial prices, including oil CL00, 1.28%, over the past year, it isn’t a very positive economic synopsis. Then you have to ask, what is going on with the U.S. dollar if things in America are so hunky-dory?

So, I would say that the stock market seems to be the odd man out.

Story by Jonathan Burton - Redacted shorter to keep to important points and bullet points added by HGG https://www.marketwatch.com/story/no-chance-were-having-a-soft-landing-stock-market-strategist-david-rosenberg-gives-powells-fed-no-credit-and-no-mercy-52ea2ed6

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The BRICS bloc of countries are working on the creation of a new gold-backed currency that could potentially shift the global economic landscape.
They seek to establish a currency partially backed by gold, challenging the US dollar's dominance.
How long this takes remains uncertain, the implications for savers and retirees in the US could be profound:
While the future remains uncertain, the possibility of a new global reserve currency challenges the established economic order. As countries consider alternatives, central banks around the world are boosting stockpiles of gold.

(Harvard Gold Group) Controlling and printing a global reserve currency comes with the extraordinary ability to export inflation worldwide. However, the history of reserve currencies reveals an inevitable failure, with one root problem: the abuse of the power of the monetary printing press "money printing". As the US dollar faces mounting challenges, the BRICS bloc of countries are working on the creation of a new gold-backed currency that could potentially shift the global economic landscape.

The motivation behind the BRICS bloc's efforts is significant, as they seek to establish a currency partially backed by gold, challenging the US dollar's dominance. While how long this takes remains uncertain, the implications for savers and retirees in the US could be profound:

Price Inflation: A decline in international demand for US dollars could lead to excess dollars staying within the country, chasing goods, and causing price inflation.

Dollar Repatriation: Dollars abroad may flow back to the US, further contributing to inflation as they chase goods domestically.

Widening Trade Deficits: With less incentive to produce goods for US dollars, there might be a decrease in imported goods, leading to price increases.

Lagging Wage Adjustments: Wages and yields are supposed to adjust with inflation, but the process typically lags behind rapidly increasing prices, impacting retirees relying on fixed income sources.

Erosion of Savings: Rising prices could quickly deplete savings, making it challenging for individuals to cope with daily expenses.

Moreover, the introduction of a gold-backed currency could lead to several consequences:

Gold Demand: Gold prices could rise significantly and outpace inflation, serving as a strong defensive holding during an adjustment period.
Sovereign Wealth Transfer: Real tangible wealth, represented by gold, might flow out of the country in exchange for consumable goods, potentially causing long-term damage.

As experts, including Robert Kiyosaki, raise alarms about these developments, owning precious metals may provide a viable defense against the anti-dollar movements.

While the future remains uncertain, the possibility of a new global reserve currency challenges the established economic order. As countries consider alternatives, central banks around the world are boosting stockpiles of gold. The World Gold Council reported on May 5, 2023, that in the first quarter, 228.4 tons of gold were added to global reserves. Harvard Gold Group believes countries are stockpiling gold to prepare and protect from the up-and-coming shift in the Global Reserve Currency. Over time, this could lead to a dollar collapse. We believe putting yourself and your family on a gold standard is critical to preserve and protect your retirement security. For our free investor's guide, to answer questions, or guide you through the simple 1-2-3 steps, Call Harvard Gold Group today at 844-977-4653.

Story by Harvard Gold Group

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