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Hey, this is Sharan Srivatsa. Welcome back to the Business School podcast. And in this episode, I'm going to talk to you about why Moody's downgraded America's credit rating. And is there some kind of massive crisis that we are walking into? In fact, what does this actually mean for you, your business, and your bottom line? Now, I'm going to break this down in 10 easy points. I give you the 10 things that you need to know in this entire process and specifically what it means for you and how you could protect yourself from everything that's coming. And it all starts right now.
- [00:34]
B
One thing is for certain, just because it's tried and true doesn't mean it's working right now. So the big question is this. Where can you learn what is working right now? The strategies, the tactics, the psychology, and.
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A
The exact how to.
- [00:50]
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How to grow your business, how to blow up your personal brand and supercharge your personal growth. That is the question, and this podcast will give you the answer. My name is Sharan Trivata, and welcome to Business School.
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A
So the big news that's been making waves is that Moody's just downgraded America's credit. Now, everyone should need to know this because it's significant. You must be thinking, okay, another headline, Sharon, what am I going to do? But for Moody's, this is a specific kind of shift. This is a downgrade of the actual rating. That hasn't happened in many, many years. And some would argue that it's come without the same kind of massive global crisis backdrop that we may have had in the past, like the pandemic or the global financial crisis. So the big question is, what does this actually mean for you, for your business, and for the everyday person? That's exactly what we're gonna dive into today. I'm gonna break down exactly what you need to know in 10 quick and simple points, like I always do. So not a lot of heavy jargon. Just hang on, listen to what it is, and hopefully this helps you overall. So let's get into it, right? So number one, America's report card grade just went down a bit. So imagine America has this grade and for how good it is at paying back money it borrows. Moody is one of the big companies that gives out these grades, changed America's rating from the very, very top rating. Think of it as a perfect A plus. Down a notch. Now, let me be clear. This new grade is still really good. It's not like we're suddenly a bad investment, but it's not that perfect gold star anymore. And when that perfect score changes people, especially people who lend huge amounts of money, they pause and they start to ask, wait, what happened? What's different? Why is this changing? It's a subtle shift, but it's definitely get starts to get people talking. And the last thing you want is more uncertainty. Right? So that's number one. All right, so what's number two? This is a country's money report card. It's kind of like yours, but on a massive global scale. So you know how your personal credit score tells banks if you're a good bet, if you want to borrow money for a car or a house, etc. Right. Well, this is the same fundamental idea just for an entire country, as we're taking on billions or even trillions of dollars in debt to operate our country, this grade helps lenders, call it other institutions, banks, other foreign nations, et cetera. This helps these lenders, these big global investors, decide how risky it is to lend money to the US and we've always been the gold standard. We've always been the flight to safety, as we call them. Like when world goes to hell in the hand basket, people are like, hey, you want to invest in U.S. treasuries? And here's the simple truth of it. If the grade is a little lower, it signals just a little bit more risk. They're saying, hey, just a little bit more risk. And why? And when that risk goes up, often the price of borrowing, which is the interest rate goes up too. So while it may only seem as a tiny percentage point in interest, when you are borrowing trillions of dollars, it costs the US Government a not just a tiny bit more money to borrow a lot more. And when a significant portion of our budget goes to paying interest, it starts to affect how our economy works. That is the main idea. So here's number three. Here's a really important piece of context for now. So America has been in a pattern of spending more money than it actually brings in. Now, that may sound weird, but America has a budget too, and it's kind of not followed its budget. Think of this in terms of your own household or your business budget, right? So if your expenses are consistently higher than your income, month after month, year after year, you have to cover the gap. And how do you cover the gap? Usually by borrowing. So let's say your budget for the year is $100,000. You spend $120,000. Or where's the $20,000 coming from? You're going to borrow that money with the hopes that you're going to invest that in some way and pay that money back. Well, the U.S. government has been doing exactly something like that for a number of years now. And when you keep spending more than you earn and the difference just doesn't disappear and it piles up over and over and that large number just looms larger and larger and that growing amount of money is owed, that's what's called our national debt. It's not just about one tough year though, it's about a long term trend. And we have to find a way to make this work. And when you can't find a way to balance the budget, as they call it, people get weird, people get uncertain, which is why this whole downgrade is happening. All right, so number four, because of this increasing debt, just paying the interest alone, that extra charge of the loans is becoming a really, really big expense. That's what people are trying to say. So this is a crucial point. When a country owes a lot of money, it's not just responsible for paying back the original amount borrowed, just like you would borrow money, you have to pay more than that. It also has to pay interest. And the interest that needs to be paid has to happen at an ongoing basis. And that is the total gets. And that essentially that total debt gets bigger and bigger and bigger and the total interest payments also get bigger. We are heading into a situation where a very significant portion of the money that the US Government collect, collects could be going just to pay this interest, maybe more than what is spent on other important national priorities like defense or education or what have you. So imagine your business if a huge slice of your revenue was eaten up by interest payments before you even got to operating costs like paying for payroll or your building or technology or investments in growth, that would really squeeze you, wouldn't it? And that's where the US is right now. All right, so number five, now here's where it starts to connect a little bit more, kind of broadly. When it costs the government money to borrow, it can eventually start to cost everyone a bit more to borrow, borrow money as well, because we fund the government. Like think about that. Say it again. When it costs the government more money to borrow, it can eventually cost every one of us a bit more money to borrow. Because in a lot of ways we fund the government. So this is the key takeaway. The interest rates that individuals and businesses pay for things like mortgages to buy a home, loans to buy a car or capital for businesses expand. These rates are often influenced by the baseline set by the US Government borrowing Costs. So Uncle Sam's cost of borrowing, if it goes up a little bit, it tends to put more pressure on interest rates across the economy. It's like a little tide that can lift all these boats or in our case, more borrowing costs, which means no fun for us. So you want to know that as that stuff increases, our day to day stuff will increase as well because we're all tied to the same number in a lot of ways. So number six, so if you're running a business or maybe you're an entrepreneur dreaming of starting a business, this, this economic shift, if you will, could mean that getting access to money or getting access to a loan or a line of credit or capital may become a little bit more challenging because as things get tighter, all the banks and the lenders want to get tighter too, right? So here's kind of the typical pattern on how things work. When there's a perception of increased risk or uncertainty in the broader economy, banks and other lenders often become a little bit more cautious. That makes sense. It's just a, it's just human nature and business nature, if you will. So for you, the business owner, this could translate into a few different things. It may mean a little tougher to get a loan approved. It may mean that the interest rate on any new borrowing could be higher. It may mean that you might find the lenders are asking for more documentation or have sticker requirements. It may mean that you have to provide a personal guarantee when you didn't have to before. Small businesses and startups, and startups in particular, can sometimes feel this credit tightening more because the cost of capital overall, as they call it, gets a little higher. Right? That's what it is. All right. Number seven, just jamming through this, by the way, if you believe it or not, the financial health, and they call it the credit worthiness of the US is something that the entire world play pays very close attention to. Meaning if this same thing had happened to, I don't know, Italy, it sort of matters, but it doesn't because the world doesn't trade on the US dollar everywhere or the Italian lir everywhere, Right? It's the US dollar that is the base currency. And if this affects us, it affects the entire world. And it affects the entire world. Everything from shipping to logistics to the cost of Internet in Papua New guinea, everything is going up. And that's the crazy part about all of this. So America's economy and call it its financial system are incredibly important on the global stage. That's why we call our president, you know, the mo. The most, you know, the leader of the free world. Right. So the US Government debt, things like treasury bonds, have historically been seen as some of the safest, most secure investments in the world. So if these big international investors and other countries start to perceive even a slight increase in risk, or even if their confidence waivers just a little bit, it can create these crazy ripples throughout the global financial system. Now it's all about perception of stability and trust. When the markets and the investors feel stable, everything is stable. When they don't feel a sensitivity, everything feels volatile. And so any change that can influence the value of the US Dollar or the value of international trade and how easily the US Dollar can attract investment is no fun. Which is why what happens to the US Dollar, what happens to the US Treasuries, what happens to the US Credit worthiness, what happens to the US Presidency, what happens to the US Politics, what happens to US Congress, what happens in America and how the American consumer works and how the American political system works, and how the American economic system works. Everything that happens here has this daisy chain effect of what happens across the world, which is why this matters now. Because the world is like, wait a minute, if the person, if the place that we believe that the safest thing is not the safest anymore, or there's a chink in the armor, what do we do? And that causes chaos. Right? Here's number eight. Now, it's really crucial to kind of keep that in perspective because this downgrade is more just like a. Call it a flashing yellow light, not a blaring red light. That's all this is inside. I don't have a different color example to give you. They're just saying, hey, hello, I'm here. What's up? Like, you should probably pay attention to this. That's all this is. And that's good, because I think that if Moody's had not done this, then everyone is just chomping along. And I'm. In a lot of ways, there is no other way to have an independent body actually do this and create these yellow flashing lights, which I think is a good thing. So let's be super, super clear. The ratings change does not mean. Does not mean that the US Economy is about to crumble or there's like a massive crisis or anything like that. No, the US still has a very, very strong credit rating. Overall. It remains a cornerstone of the global economy. We are the kingpin, if you will. And. But events like these are, what you call it, signals. They're like a yellow light on A dashboard, you know, your check engine light, if you will, right. They're saying, hey, there must be something here, you should probably check it out and why don't you kind of. We probably need some careful management and attention to ensure that these long term financial strength and stability works. Now if you are not paying attention, there is also a active bill in Congress right now at the recording of this episode, which puts a lot of this into play. It's really hard to get a bipartisan bill passed in Congress when it comes to money because one side of the aisle wants, you know, less taxes and less expenses. The other side of the taxes wants more taxes and more expenses. Now the reason for less taxes and less expenses is to have a smaller, smaller government to create, you know, the wealth. The wealthy become wealthier and they, it's a lot more capitalistic. The other side of the, the aisle wants more spending and more taxes that we can provide for social programs and invest in our economy. Neither is good nor bad. Each of them have their own ideologies. A lot of times we as single issue voters have to choose among them. I'm not trying to make this political, but what I'm saying is that the, this is number nine, the ongoing political debates and sometimes we get gridlock over these budget issues and financial plans. So the rating agencies are saying that this is not helping the situation. That's what I was trying to say. One of the, this bill was probably going to pass with a one vote margin. That's crazy, right? One vote margin. So when Moody's or any other rating agency looks at a country's credit, they don't just look at these numbers. They're also looking at the stability and predictability of its governance. They're saying, hey, what is the management team? What is the CEO? What is the management, what is the cfo? What is the country doing to manage this process overall? And the governance and policymaking is important because what gets passed today is going to start to benefit the country going forward. Right? And the agencies have pointed out that the continued kind of political disagreement and difficulties in reaching consensus and long term fiscal plans can create uncertainty, uncertainty, bad. And the financial markets and the people who kind of lend money, investors really value certainty and a clear strategy, if you will. They know what to expect and so they can bet on that. So it's less about like specific policies and more about like this overall ability to manage a nation's finances effectively and proactively. That is the thing. And that's why the agencies are like, hey, listen, if you Guys, don't get it together. You're making us nervous. So we're gonna, you know, we're gonna reduce your credit worthiness here. So number 10, bring it all together. So how does all of this big picture economic news actually affect you, your family and your business in some kind of real way? So it may seem like these are super high level issues. You may say, I'm just going to stick my head in the sand and do whatever I need to do and I'll figure it out later. It may say, you may feel like you're. It's far removed from daily life. But I'm telling you this, there are deep connections. If the government faces higher borrowing costs over time, that could influence decisions about public spending or taxation. I'm telling you, as we have talked about it, for individuals and businesses, the interest rate environment matters. Everything matters. And you've seen as soon as the interest rate changes, it changes how the economy works. The rate on your credit card in terms of a future business loan or a future cost of mortgage could be not just subtly but dramatically influenced by these broader, broader trends. It's not usually direct, it's not usually immediate, but it is part of the overall economic weather that we operate in. So you need to know, which means if you are like, hey, these rates are going up, I can clean house, I can reset, I can refi, I can change my cash flow projections, I can not hire that person, I can go more AI, you want to make those decisions now. That's why I'm recording this episode. Not to tell you about the Moody's downgrade, but to tell you that this matters to you. It won't happen overnight, but you're getting a warning, you're getting a check engine light, you're getting a thing that says, listen, this may change. So what can I. If you knew something was going to happen in six months, you got the heads up. Now at least you have. Maybe you can't do anything, but you can, right? Maybe you emotionally think about it, and that's why this is important. So I'll give you all 10, 10 points to help you understand more about this US credit rating, what this news is all about. And my goal here was not to create concern, but to bring you some operating clarity. I know it's an overused word, but I wanted to give you something in advance of it kind of immediately jumping on you in the next six or 12 months. Because there's a great quote that says, the problem is not the problem. The problem is how you think about the problem. And I wanted you to think about the problem sooner. I wanted you to be more informed. And a lot of people have been asking me about this. I've had to do some research on this. I've had to figure out what the, what the, you know, national, international repercussions are. I've had to figure out where I want to, where I would want to invest my money. I've had to figure out which of the properties do have I invested in that I probably have to refi. I have to figure out whether I should go ahead and pull my pull the trigger on that solar project versus I versus not doing it in one of my properties. I have to figure all that out right now. And that's why this is important. So if this breakdown was broadly helpful to you, I hope this was easy. I hope this had no jargon and you think somebody, a friend would like it, please share it because all I'm trying to do is want to paint this picture because I've not seen one good article that actually breaks it down in layman's terms. And I thought I would give this to you as well. So if I don't get a lot of feedback on this because it's super hard for you to like, press a button or tell me something on the podcast at first, thank you for listening. But more importantly, I wanted to pack all of this in in like a, under, you know, 12 minutes so that you could be efficient with your day. If you like this, can you take the screenshot and post it and tag me? That way I can make more like this for you. So please, if you like this, take a screenshot and tag me and that way I'll know and I will make more like this for you. So in the meantime, it's not how you can't predict what happens, but you can prepare. So I hope you prepare for what may potentially happen. Puts you into this spot. All right, catch you on the next one.
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