The January 6 riot contributed to Fitch’s US credit rating downgrade.

The January 6 riot contributed to Fitch's US credit rating downgrade.

The Impact of the January 6 Riot on the US Credit Rating

US Credit Rating

The January 6 riots at the US Capitol had a significant impact on the country’s credit rating, according to Fitch Ratings. The agency used the insurrection as an example of political polarization, a trend that has been steadily eroding the standard of governance in the United States for the past two decades.

Fitch shocked the markets on Tuesday with its decision to downgrade the US’s credit rating from AAA to AA+. This unexpected move rattled stocks, with the S&P 500 slipping 1%, the Nasdaq Composite plunging over 2%, and the Dow Jones Industrial Average shedding just under 350 points. The downgrade, which highlighted the deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, was met with immediate criticism from the Biden administration.

Treasury Secretary Janet Yellen labeled Fitch’s downgrade as “arbitrary and based on outdated data.” However, Fitch’s senior director, Richard Francis, defended the agency’s decision, emphasizing that the January 6 riot was just one example of the declining governance in the United States.

“It was something that we highlighted because it just is a reflection of the deterioration in governance, it’s one of many,” Francis said. “You have the debt ceiling, you have Jan. 6. Clearly, if you look at polarization with both parties … the Democrats have gone further left and Republicans further right, so the middle is kind of falling apart basically.”

In 2011, S&P Global made a similar move when it downgraded the US’s credit score. At that time, political polarization was also cited as one justification for the decision. The parallel between the two downgrades underscores the concern about the long-standing issue of political polarization and the impact it has on the country’s governance.

Within the past two months, the US government managed to suspend the borrowing limit until January 2025 through an agreement between President Joe Biden and House Republicans. This prevented a catastrophic default after months of deadlock in Washington. However, despite this temporary resolution, the underlying issue of political polarization remains a significant obstacle to effective governance.

Fitch’s decision to factor in the January 6 riot is indicative of the growing weight given to political events and their implications for the overall governance of a country. The agency’s focus on political polarization as a driver of declining governance standards highlights the need for greater unity and compromise in the US political system. The inability to find common ground between the two major parties threatens to destabilize the middle ground and weaken the country’s ability to address critical fiscal and debt matters.

It is essential for policymakers to recognize the link between political polarization and the country’s economic stability and creditworthiness. Without a concerted effort to bridge the divide and prioritize effective governance, the US’s credit rating may continue to face downward pressure. It is crucial for both Democrats and Republicans to find common ground and work towards policies that ensure the long-term economic prosperity of the nation.

In conclusion, Fitch Ratings’ decision to downgrade the US credit rating was influenced by the January 6 riot and political polarization. The deterioration in governance standards over the past 20 years, including fiscal and debt matters, has been a cause for concern. The downgrade highlights the need for both major parties to find common ground and prioritize effective governance. Only through unity and compromise can the US ensure its economic stability and maintain a strong credit rating in the long run.