'Urgent' matter for US economy: Alarm raised about Trump's 'path to financial crisis'

19 May

Donald Trump

Moody's Analytics delivered some bad news for the U.S. economy on Friday, May 16 when it downgraded the United States' credit rating. Moody's cited the country's growing national debt, which is up to $36 trillion, as the reason.

Some supporters of President Donald Trump economic policies are claiming that the downgrade is no big deal. But economist Rebecca Patterson, in an op-ed published by the New York Times on May 19, lays out some reasons why the downgrade should not be taken lightly.

"That means America's debt is officially no longer considered pristine by any of the main companies that rate it," explains Patterson, formerly of JPMorgan Chase. "Moody’s cited successive bipartisan failures to reverse the growing U.S. budget deficit, which it estimated could increase to 9 percent of the gross domestic product within the coming decade, from the 6.4 percent it hit last year. It has previously reached those levels only during times of global crisis: World War 2, the 2008 financial crisis and the COVID pandemic."

Patterson continues, "It's easy to downplay these fears after decades of handwringing that have come to naught. In 1988 — 37 years ago — when U.S. federal debt was less than half what it is today, measured as a percentage of GDP, the Federal Reserve chairman, Alan Greenspan, warned of the country's fiscal situation."

In 2025, Patterson warns, "dynamics" are "changing in ways that finally make Mr. Greenspan’s warnings urgent."

"Some investors are questioning how much exposure they want in U.S. financial assets," Patterson observes. "Politicians clinging to increasingly thin majorities in Congress are more willing to encourage voters with spending or tax cuts than they are to tackle the problem. The combination will lead to investors demanding higher interest rates to buy U.S. debt, which slows economic growth by raising borrowing costs for households and businesses."

The economist continues, "It also eats into the cash available for the government itself, worsening the underlying budget math. Wash, rinse, repeat."

According to Patterson, the United States' "growing debt burden" also "risks making bond buyers nervous and thus, America’s debt more expensive to maintain."

"Sadly, it seems unlikely the Moody’s rating downgrade will be the catalyst for Congress to change its current policy path," Patterson argues. "But lawmakers should know that the potential for America to shift from a gradual, albeit unsustainable path to a sudden financial crisis is surely increasing."

Rebecca Patterson's full New York Times op-ed is available at this link (subscription required).

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