Following Moody’s decision to strip the US of its final AAA sovereign rating, Stephen Jen delivers a pointed assessment of US fiscal credibility. While the Trump Administration has publicly committed to fixing the nation’s twin deficits, Jen argues they’ve focused too aggressively on trade—and not nearly enough on the more pressing problem: fiscal sustainability.
He critiques the current trajectory of government spending, now at 24% of GDP against a long-term revenue average of just 17%, and challenges the optimism behind a supply-side solution that lacks meaningful cuts. With entitlement spending rising and political resistance to reform entrenched, Jen warns that time is running out.
The result? A rising risk that bond vigilantes step in and impose discipline where policy has failed. With the US potentially on track to reach 120% debt-to-GDP within the decade, Jen draws an unsettling parallel to Japan and Italy—and questions whether QE will again be used to cap yields. In his view, the downgrade is both justified and overdue.
Key Quote
“I admit I had been too naïve in believing that the Trump Administration would genuinely pursue a ‘small government’ fiscal posture. This is very disappointing.”
Table of Contents
- Moody’s has been very late.
- Big but not-so-beautiful.
- Bad for USD assets.
To read more of our latest macro and market insights, click here to start a free trial of our research.
Disclosure
This communication is issued by Eurizon SLJ Capital Limited (“ESLJ”), a private limited company registered in England (company number: 09775525) having its registered office at 90 Queen Street, London EC4N 1SA, United Kingdom. ESLJ is authorised and regulated by the Financial Conduct Authority (FRN: 736926). This communication is treated as a marketing communication intended for professional investors only and is provided only for information purposes. It has not been prepared in accordance with legal and regulatory requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. It does not constitute research on investment matters and should not be construed as containing any recommendation, advice or suggestion, implicit or explicit, with respect to any investment strategy or financial instruments, or the issuers of any financial instruments, or a solicitation, offer or financial promotion relating to any securities or investments. ESLJ and its affiliates do not assume any liability whatsoever for the contents of this communication, save to the extent agreed in any written contract entered into between ESLJ and the recipient, and do not make any representation or warranty as to the accuracy or completeness of any information contained in this communication. Views are accurate as at the time of publication. Opinions expressed by individuals are their own and do not necessarily reflect those of ESLJ or any of its affiliates. The value of any investment may change and an investor may not get back the original amount invested. Past performance is not an indicator of future performance. This communication may not be reproduced, redistributed or copied in whole or in part for any purpose. It may not be distributed in any jurisdiction where its distribution may be restricted by law and persons into whose possession this communication comes should inform themselves about, and observe, any such restrictions.
ESLJ-200525-P1
Subscribe to our insights
If you are interested in our content, please sign up below and we will deliver Eurizon SLJ insights right to your inbox.
I consent to my data being collected and stored for the purposes of providing me information regarding my enquiry and related services. If you have any questions about your data please contact us at research@eurizonslj.com
Our Research
Our written research products aim to provide unique and orthogonal insights on key global economic and policy issues in a timely fashion.
