NYT: “.. People making between about $51,000 and $17,000 could lose about $700 on average in after-tax income ..
“By contrast, the top 0.1 percent, including those with incomes over $4.3 million, would gain on average more than $389,000 ..”
— Carl Quintanilla (@carlquintanilla.bsky.social) May 19, 2025 at 8:38 AM
Bank of America’s strategists wrote, “With tax cuts and tariffs hanging in the balance, Moody’s appears to be sending a message that it thinks these policy changes will, on net, put the U.S. on an even worse fiscal trajectory.” As the Wall Street Journal noted, “The current proposal would increase projected budget deficits by nearly $3 trillion through 2034, locking in tax cuts and spending increases that outweigh reductions in spending on Medicaid and nutrition assistance.” Republicans claim that their tax cuts for billionaires and cuts to Medicaid will grow the economy enough to counteract the massive amount of debt this bill will add, but you can’t find an analyst on Wall Street willing to back that notion up in public right now. It’s widely accepted that this GOP bill will explode the deficit at a precarious time where the US quite literally cannot afford to do that, and if the deficit follows the path all economics says it should, borrowing costs for Americans will continue to rise along with treasury bond yields in the midst of their ongoing selloff.
“Declining Foreign Participation in US Treasury 30-Year Auctions”
(via Apollo)
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— Carl Quintanilla (@carlquintanilla.bsky.social) May 19, 2025 at 5:03 AM
It’s understandable how many people naturally roll their eyes when they hear the words “deficit” or “national debt,” as craven cynics have hid behind both for years as supposed explanations for why we can’t have nice things (even while those concerns disappear the moment the debt rises so billionaires can become wealthier). But times have changed, and the US is not in as strong of an economic position as it has been. Nearly $1 out of every $7 the government spends these days goes to pay interest on the debt—which is more than we spend on defense. This “big, beautiful bill” for billionaires will blow out the deficit, raise borrowing costs for Americans, and place further stress on an already stressed treasury market.
Debt and deficits have not been as big of a problem in the past, and when the US was downgraded in 2011, treasury yields actually fell right afterwards as investors bought US bonds in a big rally, proving that the world still saw us as a safe haven, while the 2023 downgrade barely had an impact on the market in either direction. That yields have risen in the early hours after this downgrade suggests that this time may be different. The 2011 and 2023 downgrades are part of this current backdrop, and the GOP passing a bill that would explode the deficit at a time that long term bond yields are already pushing five percent would do very little to stem that momentum. This is important to normal folks because long term bond yields determine interest rates around the world, and it’s why the average 30-year fixed mortgage rate today is about the same as it was last year before the Fed started cutting interest rates. Trump quite literally is making borrowing costs higher for Americans through his trade war and fiscal ineptitude.
The other problem that higher bond yields present is it makes investing in businesses and hiring new people less attractive. Companies typically take on debt to make new capital expenditures, and if debt is a lot more expensive, then that means investors will look elsewhere for cheaper credit. This GOP bill, assuming it gets passed and then no other measures are taken afterwards, would, per the Congressional Budget Office, increase publicly held debt as a share of GDP to 117 percent by 2034, higher than it was during World War II. You don’t need a degree in economics to know that would not be good for America’s falling credit rating.
Treasuries sold off again today, although last night’s selloff through the morning that pushed some long-term yields above the “uh-oh” level of five percent came back down during the day. It’s not likely that much of this action in the treasury market is directly tied to the downgrade of US credit outside the heightened aversion of foreign investors to US treasuries. This downgrade was already getting priced in during the chaos of the last several weeks as Trump’s plan to nuke the global economy came into place. This move by Moody’s is confirmation more than anything, proving that it’s not just hysteric liberals on Bluesky saying that the Trump administration is careening towards sheer economic disaster. The largest, most liquid market in the world is backing this notion up, and the fact that you can read about the widespread concerns over the US’s formerly pristine credit in the Wall Street Journal and Financial Times tells you how deep the doubt goes in the Trump administration’s economic policies.
America has been able to be flippant about debt and deficits because the safe haven status we earned has always outweighed any concerns about future liabilities. If people keep investing in America, and you can manage your debt payments, the big scary national debt figure that Republicans like to throw around to justify taking food from starving children is largely meaningless. The problem now is that with interest rates rising, and the debt being a lot more burdensome than it was compared to 2019, paying interest on US debt is quite onerous. Trump and the GOP are determined to make it even more difficult, all so they can hand their billionaire friends another tax cut while taking health care away from poor people. Given the trajectory Trump and the Republicans are putting us on, the odds are good this won’t be the last time in our lifetimes that we see America’s credit rating get downgraded.
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