“Shark Tank” star Kevin O’Leary is sounding the alarm over the downgraded U.S. debt rating, warning the move could become a “big problem” for Americans and the nation’s standing on the world stage.
Last week, Fitch announced it officially downgraded the United States’s long-term foreign-currency Issuer default rating (IDR) to “AA+” from “AAA,” saying the downgrade “reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”
“It’s impossible to paint this downgrade with a positive brush in any way at all,” the O’Leary Ventures chairman told “Sunday Night in America.” “It is a big deal.”
O’Leary outlined the wide-reaching effects of such move, pointing to its potential impact on the U.S. dollar, the Treasury bill and the general faith in the U.S. government’s ability to repay its bills.
“There’s less confidence, period,” he said. “If ever the world thinks we’re unable to pay our bills and would default on them, that’s when it’s all over. We’re so far from that right now, but it’s the beginning of the cracks in that faith that you have to be concerned about.”
O’Leary added that the eroding faith in the U.S. economy could require the U.S. to pay higher interest rates to people outside the United States and other foreign governments, including China, to convince them to finance U.S. deficits.
“You can’t say this is good news. There is no good news here, zero,” O’Leary emphasized.
Gowdy mentioned the stock market’s recent rally and asked O’Leary if the market would continue its upward trajectory or if the Fitch rating would stifle investor optimism.
O’Leary acknowledged the impact from the rating downgrade but also pointed to government spending, such as the Inflation Reduction Act and the CHIPS Act, as a boon for larger corporations.
“If you’re an S&P 500 company, you’re going to be flush with cash for the next three years because government is printing like crazy for you.”
However, “If you’re a small guy in Des Moines, Iowa, or Champaign-Urbana, you’ve got some big problems because that car loan that you used to pay 5% for is now sitting between seven, eight, nine and even 10% on AAA credits,” he continued. “You’ve got a really big problem starting to emerge in mainstream America… the real economy is ma and pa, first generation and second generation family business… they’ve got big issues on the cost of capital. They can’t even get loans.”
Gowdy recalled previous government shutdowns while serving as a congressman, asking O’Leary why Fitch Ratings didn’t make its decision to downgrade the U.S. debt rating then.
O’Leary clarified that government shutdowns and credit ratings operate separately of one another, he said government shutdowns are “more about politicians beating each other up” and “everybody knows in the last hour” a resolution will be reached. Whereas, the credit rating downgrade comes from concerns arising over the “amount of debt that the U.S. government is borrowing versus its propensity to be able to pay it back.”
Moreover, O’Leary stressed the importance of monitoring the long bond. He said, “Anything long duration on treasuries, if rates start to creep up there, that’s faith eroding.”
The Fitch downgrade is only the second ever in the nation’s history.
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