The crisis of federal indebtedness threatens to escalate as the last holdout among the three debt rating agencies is sounding a warning on America’s fiscal outlook. Moody’s cautions that American “fiscal strength” has “deteriorated further” since November 2023. That’s when the firm last assigned America its top AAA credit rating. America’s fiscal health, per Moody’s, “is on course for a continued multiyear decline,” the Financial Times reports today.

The warning on the strength of America’s credit is a reminder that today’s Himalayas of debt is a symptom of the fiat money era. The debt crisis is intertwined with, and inseparable from, the monetary crisis that just saw a spiral of inflation unleashed during the Biden administration. Under the gold exchange standard, which America abandoned in 1971, the fiscal and monetary discipline required by currency convertibility would have prevented such a runup in debt.

A credit downgrade by Moody’s would follow similar moves by Fitch, which in August 2023 lowered its rating of America’s credit by a notch. The agency pointed to Uncle Sam’s “high and growing general government debt burden.” Back in 2011, S&P Global Ratings, too, lowered America’s creditworthiness, noting that “elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden.”

Moody’s, though touting the  “extraordinary” resilience of America’s economy, as well as what the FT describes as “the role of the dollar and the Treasury market as backbones of the global financial system,” is raising concerns about the impact of Trump administration policies on Uncle Sam’s fiscal health. Moody’s, in particular, sees the prospect of “sweeping tariffs and plans for tax cuts” doing “more harm than good for government revenues.”

That warning against tax cuts betrays an ideological view that is rejected by the Trump administration. It sees the plans for tax cuts, combined with deregulation of the economy and strategic use of tariffs — all part of “one big beautiful bill,” as President Trump likes to say — as facets of a pro-growth agenda that will, in the medium term, yield greater tax revenues. The pro-growth tax cuts are at the heart of Mr. Trump’s second term strategy.

In any event, the warning from Moody’s, the FT reports, “comes amid a furious debate on Capitol Hill,” and within the White House, “over how to place the US on a more sustainable fiscal path.” The “rapidly rising debt and deficit,” the FT adds, “could ultimately dent demand for Treasuries.” Pimco, a key bond manager, has already cautioned that it has “sustainability questions” that make the firm hesitant to buy long-term American debt. 

Such doubts could make it more expensive for America to borrow, leading to a kind of downward spiral of debt. The atmosphere of uncertainty is underscored by questions over whether the GOP Congress can enact necessary spending trims as it moves ahead on budget legislation. Plus, too, the Congressional Budget Office forecasted today that America “is likely to breach its debt limit in August or September if Congress doesn’t act,” Politico reported. 

Yet that “doomsday date,” Politico adds, “could come as early as late May or sometime in June if tax receipts come in well below predictions this spring.” With the debt soaring past $36 trillion with no sign of slowing down, it’s no wonder that Moody’s is writing of “increasing risks that the deterioration of US fiscal strength may no longer be fully offset by its extraordinary strength.” The danger, Politico reports, is of an explicit default on America’s debt.

Yet the plunging value of the dollar in terms of gold — to less than a 3,000th of an ounce — signals the larger default that has already taken place and enabled the glut of federal debt. Avoiding an outright failure to repay America’s obligations is, to be sure, a priority in the months ahead for Mr. Trump and Congress. Yet a true revival of America’s creditworthiness would require restoring honest money and bringing the debt back down to earth.