The Justified Downgrade of U.S. Debt

In a recent interview, Steve Schwarzman, CEO of Blackstone, expressed his agreement with Fitch Ratings’ decision to downgrade the long-term U.S. debt. He believes that this downgrade serves as a warning to the government after multiple debt-ceiling standoffs have made the U.S. less reliable in the eyes of investors.

According to Schwarzman, the U.S. has seen a significant increase in debt since the global financial crisis, and there is little evidence of fiscal discipline moving forward. As a result, the country is now running substantial deficits.

Fitch Ratings lowered its rating on the U.S.’ long-term foreign currency issuer default rating from AAA to AA+. This downgrade reflects the expected deterioration of the country’s fiscal situation, a high and growing government debt burden, and an erosion of governance due to ongoing debt-limit standoffs.

This is the first time Fitch Ratings has downgraded U.S. sovereign debt since Standard & Poor Global Ratings took the same step in 2011. Moody’s Investors Service, however, has maintained its highest rating (Aaa) for U.S. credit, making it the last of the three major credit-rating firms to do so.

Treasury Secretary Janet Yellen criticizes Fitch Ratings

In response to Fitch Ratings’ recent move, Treasury Secretary Janet Yellen expressed her disagreement, labeling it as “arbitrary and based on outdated data.” She emphasized that this decision came after a debt-ceiling agreement that averted a potential U.S. default. Yellen firmly stated, “This rating does not alter the well-known fact that Treasury securities remain the world’s leading safe and liquid asset, and that the American economy is fundamentally robust.”

Warren Buffett’s stance on Fitch downgrade

Warren Buffett, renowned investor, echoes Yellen’s sentiments and dismisses Fitch’s downgrade. Buffett confidently asserts, “There are certain things that people should not be worried about.”

Stephen Schwarzman emphasizes the significance of the U.S. dollar

Stephen Schwarzman, offering his perspective, highlights the global relevance of the U.S. dollar as the world’s reserve currency. He explains that the United States plays a crucial role in safeguarding numerous nations, including those with AAA ratings. During times of international crises, these countries acquire U.S. securities. However, Schwarzman cautions that this support is not indefinite and emphasizes the importance of maintaining discipline. Overall, he views Fitch’s move as a warning signal.

Positive gains in U.S. stocks after July jobs report

Following the release of the July jobs report, U.S. stocks experienced an upswing. The Dow Jones Industrial Average (DJIA) climbed by 170 points or 0.5%, while the S&P 500 (SPX) also saw an increase of 0.5%.

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