Moody's Downgrade of US Rating Shakes Market, Dalio Issues Stronger Warning, and White House Strikes Back
Last Friday, international rating agency Moody's officially downgraded the US sovereign credit rating from the highest level Aaa to Aa1, citing the federal government's ongoing deficit expansion and rising debt interest payments. This move marked the first time the US has lost its AAA rating position with all three major rating agencies, shaking financial markets and quickly provoking strong reactions from political and financial circles.
White House Insists "Rating Lags," Denies Severe Credit Risk
Amid the public pressure from the downgrade, several Trump administration officials quickly voiced criticism of Moodys' decision as "lagging" and "misleading."
White House National Economic Council Director Kevin Hassett noted that US Treasury bonds are still "the safest investment on Earth," blaming the downgrade on increased fiscal spending during the Biden administration, while emphasizing that the current Trump administration is committed to reducing the federal budget deficit.
Treasury Secretary [Name] also stated that Moody's assessment overlooked current fiscal reform progress, particularly noting that Trump's tax reform will drive economic growth. He referred to Moody's as an "outdated indicator of fiscal information," arguing its rating does not reflect current risk reality.
Meanwhile, Trump spokesman Steven Cheung also posted on social media platform X, directly criticizing Moody's Chief Economist Mark Zandi for consistently holding a critical stance towards Trump policies, claiming "nobody takes his analysis seriously."
Dalio Voices a Different Opinion: Real Risk Lies in "Printing Money to Pay the Debt"
In stark contrast to the White House is the perspective of Bridgewater Founder and billionaire investor Ray Dalio, who publicly stated on Monday that Moodys' assessment of US credit risk "actually underestimates the real risk."
Dalio pointed out that rating agencies like Moody's only evaluate whether the government defaults, not considering the more destructive risk—that the US might print large sums of money to repay debt, causing bond investors to suffer actual purchasing power loss.
"Credit ratings ignore the damage to currency value, which is the real source of creditor losses," wrote Dalio. "For those concerned about the value of their assets, the real risk of US debt far exceeds the level Moody's conveys."
This statement echoes market concerns over the potential link between long-term debt issues and Federal Reserve monetary policy, highlighting the deep financial sector anxiety over inflation and currency risks brought by government deficit expansion.
Market Stabilizes After Initial Shock, Risk Aversion Remains
Following the release of Moody's downgrade, US stocks, Treasuries, and the dollar all fell on Monday, creating the so-called "triple threat" of stocks, bonds, and currencies. The yield on 30-year US Treasuries briefly soared to 5%, with 10-year yields rising to 4.56%. However, as retail capital continued to flow into US stocks, the market subsequently eased, with the three major indices closing slightly higher, temporarily avoiding a larger sell-off.
Market analysts believe that the rating adjustment wasn't a sudden factor, but it exacerbated the existing systemic anxiety due to high deficits and high-interest rate policies, especially in the context of high uncertainty over US political and economic policies in 2024.
Conclusion:
Moody's downgrade not only sparked short-term market volatility but also ignited a rhetoric battle over fiscal policy and financial risk assessment. Bridgewater founder Dalio issued a warning from a long-term currency risk perspective, while the Trump administration firmly denied the notion of excessively high current debt risk. The rating itself may be just a piece of paper, but behind it reflects the ongoing test of US fiscal sustainability and global confidence.
