US fiscal state is everyone's issue

As Donald Trump's “big, beautiful” tax bill heads to the US Senate, investors everywhere are growing increasingly uneasy.

- Paola Subacchi

On May 16, the credit-rating agency Moody's downgraded US sovereign debt from its long-held triple-A status to Aal — following similar decisions by Standard & Poor's (in 2011) and Fitch Ratings (2023). Given the sheer volume of US debt — which now stands at $36 trillion, or 124% of GDP — and rising interest costs, these institutions have concluded that US debt metrics are no longer in line with those of similarly rated sovereigns.

That means America is no longer part of the elite group of ultra-safe borrowers: countries like Germany, Switzerland, and Singapore. Instead, it has been demoted to the second tier, alongside Austria and Finland.

Although US debt is still fundamentally safe, the growing alarm over the Trump administration’s aggressive fiscal stance — which centres on massive deficit-financed tax cuts, unsupported by adequate fiscal space — is not baseless. According to the Committee for a Responsible Federal Budget, the tax bill that the House of Representatives just passed (by a single vote) would add $2.5 trillion to the primary deficit (which excludes interest payments on current debt) over the next decade, adding $3.1 trillion to public debt. Thus, Moody's projects the US debt-to-GDP ratio to hit 134% by 2035.