analysis
US creditworthiness
Growing doubts about “Trumponomics”
Scope, a leading European rating agency, has lowered the USA’s credit rating. It’s not just the ever-increasing debt that worries the experts.
The United States is the world’s largest economy, characterized by unrivaled innovation and high labor productivity. But it also has the highest mountain of debt in the world.
Both have been this way for decades, but the relationships are shifting: the debt ratio, which compares national debt to economic output, has been rising for years. While the debt level recently exceeded $38 trillion, the debt ratio has risen to over 122 percent. The International Monetary Fund expects 123 percent this year, which is slightly higher than France’s 116 percent.
This is not a trivial problem, as it inevitably leads to a vicious circle. Since government revenue depends heavily on economic performance, a higher debt ratio means that an ever larger portion of revenue has to be spent on debt service. On the other hand, the money that the state has to pay its creditors as interest is not available to provide economic stimulus, such as improving infrastructure or promoting innovative industries.
Harsh criticism of US politics
This problem was recently highlighted by the European rating agency Scope, which downgraded the USA’s credit rating on Friday. The Berlin-based agency lowered its credit rating from AA to AA-. But she didn’t just point to the persistently high budget deficits and the rising interest burden in the United States.
What is particularly noteworthy is the harsh reckoning with the policies of US President Trump. “Weakening standards of governance, particularly undermining the established separation of powers, reduces the predictability and stability of U.S. policy,” the agency’s latest advisory said.
The Scope analysts particularly complain about “the increasing accumulation of power of the executive branch,” which should actually be contained by parliament and independent courts: “The government has repeatedly disregarded court rulings, questioned the authority of the judicial authorities, undermined congressional controls and sidelined independent institutions.” One example is the many presidential decrees with which Trump single-handedly pushes through his government policies and weakens Congress.
“Division makes urgent reforms more difficult”
The “political polarization and paralysis of legislation” encouraged by the government’s behavior is also evident in the current budget blockade – the second longest in US history. This division makes urgently needed reforms, which are overdue in the tax, health and pension systems, more difficult. If the government does not take countermeasures, the debt ratio will rise to 140 percent by 2030, experts warn.
These are clear words that the leading European service provider for independent credit ratings can probably afford more than its leading global competitors from the USA, S&P Global, Moody’s and Fitch.
“The special position of the USA is in danger”
The recent departure from proven success factors is even causing long-held certainties about the USA to shake. Since 2008, the United States has been the big winner in the global economy, recently explained Werner Krämer, senior economic analyst at Lazard Asset Management Germany. “Compared to the G7 countries, we saw the best development in gross national product and labor productivity here.” The US led in innovation and in the stock market, in military strength and in cultural values and positive external perception. “In the last 17 years, the United States has experienced a golden age.”
But although the country has benefited greatly from globalization and free trade, it is turning its back on these very foundations. Free universities and free financial markets would be called into question, as would binding and rule-based agreements between states. “The special position of the USA is increasingly in danger,” summed up Krämer. “What we are currently experiencing is nothing less than a new world order.”
“Trumponomics” doesn’t seem sustainable
So is the USA heading towards a debt crisis? Experts are skeptical as to whether “Trumponomics,” the creation of trade barriers while simultaneously stimulating the economy, is sustainable. Although not all tariff rates in the bilateral trade agreements, especially with China, are final, they appear to be settling down to a percentage in the high teens, the British asset manager Insight Investment has calculated.
That means monthly tariff revenues of about $29 billion, compared to an average of $8 billion last year, according to Gareth Colesmith of Insight Investment. But that’s only about half enough to cover the costs of Trump’s gigantic fiscal program (“Big Beautiful Bill”), according to the senior analyst.
At the same time, Trump, whose term ends at the beginning of 2029, continues to rely unwaveringly on the appeal of the USA “brand”, to which he himself has caused great damage. After all, he now has the backing of a looser interest rate policy from the US Federal Reserve (Fed), which is expected to cut the key interest rate twice more this year in order to support the economy.
The financial markets have the final say
The financial markets will have the final say here. What is crucial is their trust, in short the willingness of national and international creditors to continue buying American government bonds and to use the dollar as a currency reserve.
A key indicator of this is the yield on American government bonds. This shows that Trump has caused strong irritation, particularly with his erratic tariff policy and attacks on the Fed. But recently the markets have calmed down somewhat. The yield on 30-year government bonds, which had jumped above five percent at the height of the uncertainty in May, has recently fallen again to a value of 4.6 percent. Ten-year US bonds currently yield 4.02 percent, down from up to 4.6 percent in May.
In order to assess the financial stability of the world’s largest economy, these key figures are an easily accessible and important indicator.
