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America’s Debt Downgrade Didn’t Go Far Enough

By Charles Sizemore, Chief Investment Strategist, The Freeport Society

What took them so long?

On Friday, Moody’s became the last of the three major credit-ratings agencies to downgrade U.S. debt – from a pristine Aaa to Aa1.

S&P Global Ratings downgraded Uncle Sam in 2011. Fitch followed suit in 2023.

As soon as the Moody’s news dropped, the blame game started.

Democrats pointed the finger at President Trump. Senate Democratic Leader Chuck Shumer claimed the latest downgrade was a direct result of the president’s “deficit busting tax giveaway.”

Republicans said the Democrats were to blame. Treasury Secretary Scott Bessent told NBC’s “Meet the Press” on Sunday…

We didn’t get here in the past 100 days. It’s the Biden administration and the spending that we have seen over the past four years that we inherited.

It seems neither side could be bothered to read the press release.

Here’s Moody’s on why it’s worried about America’s debt load (emphasis mine)…

Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs… 

Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat. 

In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher. America’s fiscal performance is likely to deteriorate relative to its own past and compared to other highly rated sovereigns.

As I’ve been writing about in these pages, Washington’s finances started circling the drain around 2001—the last year we ran a budget surplus.

And they’ve gotten progressively worse in the 24 years and seven presidential administrations since.

But Trump isn’t exactly making it better, either.

His “Big Beautiful” tax bill that Congress is debating?

Spoiler alert: It will add north of $3 trillion in new deficit spending over the next 10 years. That’s on top of the roughly $10 trillion in deficit spending that’s already baked in.

So, forget the hair-pulling fight in Washington over who’s to blame. Your time is better spent working on protecting your portfolio.

As we’ll look at today, the Aa1 credit rating still massively understates the scale of the problem facing America and its citizens.

By the end of this Navigator, you’ll understand why Moody’s downgrade is actually far too generous – and which three “anti-dollar” plays to own right now before the inevitable crisis hits.

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License to Print

An Aa1 rating from Moody’s suggests that the borrower is reliable, but there may be slightly more long-term uncertainty or vulnerability than an Aaa-rated entity.

But that rating is based purely on Uncle Sam’s ability to service its loans.

In that narrow sense, Moody’s is right.

The U.S. government can create as many dollars as it likes. So, it can always create dollars to service its dollar-denominated debt.

But that’s not the only way the federal debt load can become a major problem. 

Ray Dalio is the billionaire founder of hedge Bridgewater Associates. As he explained it on X…

You should know that credit ratings understate credit risks because they only rate the risk of the government not paying its debt. 

They don’t include the greater risk that the countries in debt will print money to pay their debts thus causing holders of the bonds to suffer losses from the decreased value of the money they’re getting (rather than from the decreased quantity of money they’re getting). 

Said differently, for those who care about the value of their money, the risks for U.S. government debt are greater than the rating agencies are conveying.

I agree, Mr. Dalio.

Moody’s new rating is a joke. If its analysts took their jobs seriously, they would have immediately knocked Uncle Sam’s credit rating down a few notches in 2002, when Vice President Dick Cheney claimed that “deficits don’t matter.”

And they would have knocked the rating down to junk bond levels somewhere in the middle of Trump and Biden’s Covid-era spending sprees.

The fact that they consider a credit rating of Aa1 reasonable is proof that they’re not reading their own analysis.

Of course, these were the same people that were happy to slap Aaa ratings on the junk mortgage securities that blew up the world economy back in 2008.

So, if you’re expecting these brainiacs to sound the alarm in time, you’re in for a rough time.

That’s why it’s urgent that you have some anti-dollar assets in your portfolio now.

Three “Anti-Dollar” Plays to Make Now

My favorite anti-dollar assets are gold and Bitcoin.

I recommended both at our Freeport Investor advisory when we launched in December 2023.

Since then, gold is up 60%. And Bitcoin is up 150%.

The Fed can’t print gold bars any more than it can print new bitcoins. Gold is limited by the cost and hassle of digging it out of the ground. Bitcoin is governed by an algorithm that limits its supply.

That makes them great stores of value as the oversupply of new dollars inflates away its value over time.

I continue to recommend both as cornerstone assets in your portfolio.

And if you’re looking for a more speculative way to play the rise of these anti-dollars, consider taking a smaller position in STKd 100% Bitcoin and 100% Gold ETF (BTGD).

True to its name, this ETF gives you exposure to 100% of the movement in Bitcoin and 100% of the movement in gold.

This is not a 50-50 blended portfolio – it’s leveraged to give you extra oomph when gold and bitcoin are rising.

If gold goes up 10% in a month, and Bitcoin goes up 20%, the return of BTGD would be about 30% – or the sum of the two.

Of course, that leverage cuts both ways. If Bitcoin and gold drop in value – as they periodically do – your losses are going to be leveraged, too.

So, take that into consideration as you size your position.

To life, liberty, and the pursuit of wealth,