Awash in debt, feds should look to Georgia for pointers
In the latest national humiliation, one of the big three credit ratings agencies—Fitch Ratings—downgraded the U.S. government’s credit rating from AAA to AA+. The ratings “are forward-looking opinions on the relative ability of an entity or obligation to meet financial commitments,” according to Fitch. In short, they’re like credit scores for peons like you and me.
The one-step downgrade may not seem like much of a big deal, but it should cause concern. Years of fiscal mismanagement has left the supposed leader of the free world in a position where it is evidently no longer considered a sure thing as a borrower.
Government officials have acted blindsided and astonished by Fitch’s decision—as if they are unaware of their terrible fiscal track record. Treasury Secretary Janet Yellen even called it “arbitrary.” Arbitrary, really?
Fitch elaborated on exactly why our country’s credit score took a hit. “The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions,” reads a Fitch release.
While embarrassing, it’s hard to disagree with Fitch’s reasoning. The federal government shut down in 2013, 2018 and 2019 because lawmakers refused at first to compromise on a deal to fund the government. Lawmakers often wait until the last minute to avoid defaulting on obligations. Congress has increased the federal debt limit 78 times, and hasn’t balanced a budget in over 20 years.
The federal government had about 4.9 trillion in revenue in 2022, but our national debt now sits at over $32 trillion and counting. Meanwhile, we have no legitimate plans to balance the budget or rein in entitlements, like social security, which will balloon in the coming years. This is the equivalent of a household with $50,000 of annual income having around $326,000 of debt and no plans to cut back spending whatsoever. The country’s fiscal trajectory is entirely unsustainable.
Fitch even warned of a possible downgrade back in May, and this isn’t the first time that the nation’s credit has dropped. In 2011, one of the other big credit rating agencies—Standard & Poor’s—likewise lowered the U.S. from AAA to AA+. So no, this isn’t arbitrary, nor should policymakers feel blindsided.
The good news is that the two downgrades don’t spell immediate doom. U.S. debt is issued through Treasury securities, which are historically very reliable and attractive to investors, but Fitch’s decision should be considered a warning. Without taking serious actions, our country’s credit worthiness could continue to slide—eventually leaving the nation in serious trouble.
To get the United States back on track, I’d suggest they look South. Former President Donald Trump coined the slogan, “Make America great again,” but following the recent credit fiasco, I think a more appropriate phrase is “make DC budget like Georgia again.”
Gov. Brian Kemp, the current Legislature and their predecessors have done an excellent job of putting the Peach State on stable financial footing. For starters, Georgia is statutorily required to have a balanced budget—ensuring that the state spends within its means. Budget hawks in the administration, House and Senate have managed to fill the state’s rainy day fund to the limit of a little over $5 billion.
For three years in a row, the state has brought in a very healthy surplus. At the end of the most recent fiscal year, the state found itself sitting on an extra $5 billion dollars—much of which could be returned to the taxpayers in the form of tax rebates like Kemp has done the prior two years. Alternatively, it could fund other important areas like transportation, education or law enforcement.
However it is spent, Georgia boasts another success. Unlike the federal government, the Peach State once again received a AAA bond rating from all three credit rating agencies. In response, Kemp said in a release, “I am proud Georgia’s responsible, conservative approach to budgeting has again allowed our state to secure the highest possible bond rating.”
“In the face of economic uncertainty on the national level due to bad policies coming out of Washington, D.C.,” Kemp continued, “our shared focus with the Legislature on careful budgeting and strong economic development pipeline means Georgia will be a safe bet for job creators for years to come.”
I don’t doubt that budgeting at the federal level is challenging, but the principle is the same. Spending more than you receive should be the exception, not the rule. I have little faith that D.C. powerbrokers particularly care about that, but maybe they’ll take a cue from Georgia before it’s too late.