US credit downgrade is GOP’s latest salvo against ‘Bidenomics’

Republicans are seizing on the recent downgrade to the nation’s credit rating as their latest salvo against “Bidenomics.”

In the days since Fitch Ratings — one of the “Big Three” credit rating agencies — downgraded the U.S. rating, Republicans have pinned blame on White House spending for the credit downgrade.

“The Fitch Ratings credit downgrade is a wake-up call that Bidenomics doesn’t work,” Rep. Don Bacon (R-Neb.) wrote in an Aug. 3 post on X, the platform formerly known as Twitter. “Congress must assert its power of the purse to resolve this concern and restore faith in U.S. financial institutions.”

Fitch Ratings drew headlines and questions from the Biden administration last week when it downgraded the U.S. debt rating from its top credit standing. It specifically cited the nation’s growing debt burden and repeated partisan standoffs in Washington over raising the nation’s borrowing limit for its decision.

The move prompted surprise and blowback back from both sides of the aisle, as well as a stinging rebuke from the White House that puts blame on Republicans for their role in the political brinkmanship surrounding the debt ceiling. 

Republicans in response to Fitch are amping up their arguments that Biden’s policies are to blame for increased spending and the battles over the debt ceiling.

House Budget Committee Chairman Jodey Arrington (R-Texas) told CNBC’s “Squawk Box” on Monday that both sides of the aisle have some blame in what he described as the “unsustainable debt trajectory and the rapid deterioration of the fiscal health of our country.”

However, he also singled out the past two years, when Democrats controlled both Congress and the White House, while taking aim at Democrats for “spending-induced inflation” and pointing to uncertainty around whether the nation is headed for a recession. 

“Our debt trajectory is totally unsustainable, and, in a worst-case scenario, and Fitch outlines this, we will undermine the currency and we could have a sovereign debt crisis,” Arrington said. 

Experts beyond Fitch have voiced concerns about the nation’s fiscal trajectory in recent months as both sides battle in Washington over where to cut spending. 

Blackstone CEO Stephen Schwarzman pointed to what he described as an “explosion of debt since the global financial crisis,” while telling CNBC last week that “the numbers justify” the credit downgrade.

“The U.S. is the world’s reserve currency. That doesn’t last forever if you don’t have discipline,” he said. 

Still, there is plenty of disagreement on what factors are to blame for the debt, the debt ceiling fights and the Fitch downgrade itself.

Justin Wolfers, an economics professor and a nonresident senior fellow at the Brookings Institution, said Fitch probably wouldn’t have downgraded the credit rating without the months-long fight over the debt limit.

Though Wolfers said the U.S. doesn’t fit the bill of an economy that has “borrowed more than we can repay,” he also said the debt limit fight shines a light on the nation’s “very problematic political outcomes.” 

“Despite that extraordinary ability to pay, there’s been an unwillingness to pay,” he said. 

In its announcement explaining the credit downgrade, Fitch highlighted the latest debt limit battle that gripped Washington this past spring as well as the “repeated debt-limit political standoffs and last-minute resolutions” it said had “eroded confidence in fiscal management.”

The move made Moody’s the sole credit ratings agency among the “Big Three” to keep the U.S. at its “AAA” rating, after Standard & Poor’s became the first in the group to lower the nation’s rating in 2011. That downgrade also came on the heels of a high-stakes debt limit standoff between the Obama administration and a GOP-led House.

But there are also questions around the timing of Fitch’s decision, which arrived months after Congress and the White House approved legislation to suspend the debt ceiling beyond next year. 

Donald Marron, a director of economic policy initiatives at the Urban Institute, is among the experts who have raised questions about the timing, though he also said that one could argue that the country “has gone twice to the precipice of not raising the debt limit in time.”

“That suggests that things are not working well, and the chances that they go a third time to the precipice of this is higher,’” Marron said.

An official for the agency also revealed to Reuters that it factored the January 2021 insurrection at the Capitol into its decision to downgrade. The outlet also reported that Fitch had communication with administration officials leading up to the downgrade announcement, and following protocol in its review of the nation’s credit rating.

Still, Marron and other experts say the downgrade didn’t appear to factor in information that markets weren’t already aware of.

“Sometimes a grading change would matter, like for a company, where careful analysis by a credit rating agency might reveal something that people had overlooked before,” Marron said.

But Marron said the case is entirely different when considering the size of the U.S. government.

“Incredibly talented people spend enormous amounts of time thinking about the U.S. Treasury market, and so the opportunity to show Fitch to reveal something that people don’t already know just isn’t there,” he said.

Other experts have gone even further to criticize the credit agency in wake of the downgrade.

Stony Brook University professor and economist Stephanie Kelton called the downgrade a “blow to Fitch Ratings’ reputation” at the time, while Westwood Capital managing partner Dan Alpert described the move as nonsensical and said it “will matter to no one and be forgotten in days.”

Tobias Burns contributed.