In May, the United States lost its last remaining AAA credit rating when Moody’s downgraded the country to Aa1. This move followed similar actions by other major credit agencies—Fitch lowered its rating in 2023, and S&P Global Ratings made its downgrade all the way back in 2011. In short, this didn’t come out of nowhere—we’ve been on this path for quite a while.
Just like how a person’s credit score affects their ability to borrow money, a nation’s credit rating plays a key role in how much it costs to finance its debt. With the downgrade, the U.S. government is now considered a slightly higher credit risk. As a result, the interest rates on U.S. Treasury bonds are expected to rise. When older bonds mature and the government issues new ones to cover the debt, it will have to pay higher interest, which makes the national debt more expensive to maintain. The longer this situation continues, the more strain it puts on the country’s financial position.
So, what’s the fix? The obvious answer is that the U.S. government needs to rein in its spending. However, that’s unlikely to happen in the near future. Despite a Republican-controlled Congress, there is little momentum toward reducing the social program spending that contributes heavily to the federal deficit. Without serious reform, deficit spending will likely continue to push the national debt higher.
However, the United States does have a unique advantage compared to most other countries: all of its debt is denominated in U.S. dollars. Because the U.S. controls its own currency, it technically can’t default the way other nations might. If necessary, the government can simply print more money to meet its obligations. This is very different from countries that owe debt in foreign currencies—typically U.S. dollars—and must earn or borrow enough dollars to repay what they owe. If they can’t, they risk default and painful economic consequences like restructuring.
That said, printing money is not without its own problems. If the U.S. resorts to this strategy too often, it could lead to significant inflation, which impacts everyday Americans and the broader economy. So while the U.S. is shielded from outright default, it’s not immune to financial pain.