I love it when H, my old buddy and hedge fund manager from Hong Kong, wakes me up in Italy - or this weekend, in Riyadh - with astonishing news. His WhatsApp message read:

Moody’s downgrades U.S. Do you remember when S&P did that? DOJ came knocking with fines. I’ll make you a market: 5-6 months. Are you taking the over or under? Haha.

I laughed as I was still foggy from the overnight flight into Saudi Arabia. Then I came to. What? Downgraded? OMG… Moody’s finally did it. Let me explain, and applaud my friend for his memory about S&P. Indeed, the USG doesn’t like to be told it’s broke, and lashes out when questioned.

The Final Shoe Drops

For the first time in American history, all three major credit rating agencies—S&P, Fitch, and now Moody’s—have officially said what markets have known deep down for years: the U.S. government is no longer a AAA borrower. Moody’s slashed its rating from Aaa to Aa1, citing ballooning debt, runaway deficits, spiking interest payments, and the eternal swamp of political gridlock.

Welcome to the club, Moody’s. Took you long enough.

Let’s recap the carnage.

• S&P downgraded the U.S. from AAA to AA+ in 2011 during a debt ceiling standoff.
  
  
• Fitch followed suit in 2023, citing governance deterioration and long-term fiscal risk.
  
  
• Now Moody’s, the last holdout, finally waved the white flag in May 2025.

America is now officially not a top-tier credit risk, at least according to the rating gurus. To put that in perspective: the same Uncle Sam who polices world trade routes, props up NATO, and backstops the global financial system is now seen as less creditworthy than Australia, Denmark, Singapore, and Germany.

And to be honest, it’s hard to argue with the logic.

U.S. debt is sitting at a butt-clenching $36.8 trillion. That’s $323,000 per taxpayer. The federal deficit is still running hot—6.7% of GDP this year, projected to hit nearly 9% by 2035. Interest costs are skyrocketing. Entitlement spending is metastasizing into an inexorable blob. Tax revenues are flat. And let’s not forget: Washington is as paralyzed as ever, thanks to the impossibly useless RINO Speaker of the House, Mike Johnson.

Moody’s didn’t discover the fire. It merely joined the chorus of fire-shouters in an already emptying theatre.

Why This Time Feels Different

When S&P pulled the plug in 2011, markets freaked out. Stocks tanked, Treasury yields dipped (ironically, as investors still saw USTs as a “safe haven”), and S&P allegedly (sorry, I’m obligated to use that word) became the target of political retribution.

Not long after its downgrade, S&P found itself under intense legal fire. The Department of Justice sued the agency for $5 billion over its ratings of subprime mortgage securities. And while the DOJ insisted (their word - I would’ve used “lied”) that the lawsuit had nothing to do with S&P’s audacity to downgrade the United States, the message was clear:

Piss off Uncle Sam at your own risk.

S&P eventually settled for $1.4 billion in 2015. The DOJ sued no other agency. And Moody’s learned the lesson: delay the truth for as long as possible.

That’s why Moody’s clung to its AAA rating until it was dragged away, leaving fingernail scratches in the wood floor. From World War I to COVID to Saturday, Moody’s gave the U.S. the benefit of the doubt.

Until it couldn’t anymore.

What’s new this time is that there’s no rating agency left to run to. The curtain is pulled. The emperor is naked… and borrowing money to buy ill-fitting fig leaves.

“Lagging Indicator,” or Canary in the Coal Mine?

Predictably, Treasury Secretary Scott Bessent and others shrugged off the downgrade. Bessent called Moody’s “a lagging indicator,” which may be true, but doesn’t fix the underlying problem.

But here’s the thing about “lagging indicators”: They become leading indicators when market psychology shifts. Just like the 2008 crisis wasn’t caused by subprime, but by confidence collapsing once the rot became too obvious to ignore.

Moody’s downgrade might not spark an immediate firestorm. But it’s gasoline on glowing embers.

What Happens to the Markets Now?

The short answer: brace yourself.

1. Treasury Yields Are Headed Higher

Markets were already pricing in a glut of new issuance. Now, bond vigilantes have one more reason to demand higher yields. Foreign buyers—particularly central banks—may begin to question why they’re still accepting negative real returns to fund a spendthrift America. If yields spike, it could short-circuit the Fed’s plans for a rate cut cycle later this year.

The 10-year yield jumped modestly after the news. But the 30-year yield topped 5% this morning. That’s just the beginning.

Expect Jay Powell and his feckless Fed to bring back the punch bowl.

2. Stocks Will See a Volatility Spike

Equities futures are down over 1% this morning. If yields move materially higher, growth stocks—particularly tech—will be hit. Higher yields mean lower valuations for long-term assets.

Bank stocks, already under stress from duration mismatches (looking at you, BofA) and commercial real estate exposure, will also feel more pain.

This is especially true if there’s chatter about capital flight or currency pressure on the dollar.

3. Gold and Hard Assets Will Catch a Bid

The usual safe-haven playbook goes like this: USTs rally, gold drifts.

But when Treasuries themselves are in doubt?

Gold wins. (It’s up $32.50 this morning.)

If investors start asking, “What’s actually safe anymore?” expect gold, silver, and perhaps even Bitcoin to benefit. I’m unsure about BTC because it’s too correlated to the Nasdaq. But if it follows the path of the money supply, and Jay Powell starts a stealth QE program, watch Bitcoin reach new highs.

Like Fitch’s last year, this downgrade may not trigger an overnight panic, but it adds to the erosion of trust in fiat systems. That erosion favors the eternal bearer of no one’s IOU: hard money.

4. A Weaker Dollar? Not Yet, But Watch This Space

Ironically, the dollar hasn’t cratered yet. The dollar index is trading at 100.22 at the moment.

Its status as the global reserve currency acts as a force field. There’s simply no scalable alternative.

But that’s not a permanent shield. If deficits widen, yields spike, and real interest rates become volatile, the dollar’s appeal can fade. Slowly at first, then all at once.

The BRICS+ crowd, led by China and Russia, is already experimenting with non-dollar trade settlements. This downgrade fuels their narrative.

Will the Downgrade Matter Politically?

It should, but Washington has the attention span of a toddler opening Christmas presents.

Neither party wants to own the spending problem. Democrats don’t want to cut entitlements. Republicans want to cut taxes. Like old Ben Bernanke, everyone wants to kick the can down the road.

Moody’s cited the lack of a “material multi-year fiscal plan” as a key downgrade factor. That’s because neither side will agree to meaningful reform.

So don’t expect budget restraint.

Expect more spending. More debt. And more excuses.

Can the AAA Be Restored?

Technically, yes. Moody’s says significant fiscal consolidation—raising revenue or cutting spending—could restore the rating.

In practice? Don’t hold your breath.

The U.S. will only get its AAA back if the political class experiences a collective near-death experience or if there’s a real bond market revolt that forces fiscal reform the hard way.

Either way, it won’t be pretty.

Wrap Up

This week’s trading action will be a test of just how much investors care. Will they shrug it off, as they did with Fitch? Or will Moody’s downgrade be the straw that breaks the bond market’s back?

Watch the following like a hawk:

• 10-year and 30-year Treasury yields.
  
  
• Tech and bank stock performance.
  
  
• Gold, silver, and Bitcoin moves.
  
  
• The dollar index and the VIX.
  
  
• Junk bond spreads.

If yields rise without stocks crashing, the Fed is trapped.

If stocks sell off and yields rise, the Fed is panicked.

And if gold starts ripping higher, say, to $3,300 and above?

That’s your signal that trust in fiat is truly unraveling.

Moody’s may be late to the party, but they’re the last guest standing in a house of cards held together by IOUs, duct tape, and denial.

And as of this week, even they don’t believe in the myth of American fiscal immortality.

Have a great week ahead!