The main reason is that the US spends far more money than it brings in year after year, namely the chronic budget deficit, according to the Wall Street Journal.
The newspaper's editors believe that the US government deserved this downgrade because of an 'unsustainable debt trajectory,' and that neither of the two parties is willing to stop this development.
Espen Ekberg, professor of economic history at BI Norwegian Business School, interprets Moody's assessment as meaning they can no longer defend the national debt in the same way as before.
Espen Ekberg is a professor of economic history.(Photo: BI Norwegian Business School)
"After many years of rapidly growing debt, and rising interest rates in recent years, it has probably become professionally difficult for them to defend this debt as the safest in the world," he believes.
Annonse
Ekberg points out that the two other major rating agencies have already downgraded the US national debt.
The first downgrade happened back in 2011. Then the next agency followed in 2023.
Ekberg calls this a clear signal that the US may not be able to manage its national debt in the best way.
What is a credit rating agency?
The three major rating agencies are called Moody's, S&P, and Fitch.
These agencies help investors make investment decisions.
They describe, for example, companies or national debt as high risk or low risk, according to Ekberg.
The rating consists of a grade. Moody's top grade, for instance, is Aaa. They currently rate the US national debt with the second-highest grade: Aa1, according to the agency.
Not the first time
The US has an enormous national debt. Every year, the American government spends far more money than it collects through, for example, taxes.
Currently, the US has a debt of nearly 37 trillion dollars.
If you are fascinated by huge numbers, you can check out the US Debt Clock for a detailed look.
And the idea that the US can service its debt has been considered almost rock solid.
Lending money to the US as an investor is one of the foundations of the global economy, Espen Ekberg tells Science Norway.
When you lend money to the US, the US pays interest back to you as an investor.
Lending money to the US is called buying a government bond.
For example, the Chinese government owns almost a trillon dollars in US bonds – an amount that could be used as a means of leverage.
Spend more on debt than defence
One of the major problems now is that it costs the US a huge amount just to pay the interest on its enormous debt. This is also one of the reasons Moody's downgraded US debt.
Annonse
"If you look at American government spending, interest is the second-largest expense, after Social Security," says Ekberg.
"In an economic climate like this, offering huge tax breaks to the richest makes little sense to me," he says.
Trump is reportedly trying to find ways to cover part of the deficit through other means, including Elon Musk's DOGE project, according to the BBC.
What happens now?
The question is what will happen to the national debt going forward. This may be a sign that there is no natural law guaranteeing US national debt will always be as secure as it has been for decades, according to Ekberg.
"The policies pursued in recent months have created great uncertainty in the markets. You can't rule out the possibility that holders of US government bonds may begin to sell them off," he says.
If that happens, the US would need to make its bonds more attractive by raising interest rates, which means paying out more in interest.
That would make it increasingly expensive for the US to service its debt.
Ekberg points out that the American debt has continued to grow, even though the first downgrade happened back in 2011.
He does not think this latest assessment will have any major immediate effects.
"It's more of a signal. No one is required to sell government bonds because of this," says Ekberg.
