The Last AAA Falls: Moody's Downgrade and the Dollar's Decline

Written on 17 May 2025.

The Last AAA Falls: Moody's Downgrade and the Dollar's Decline

On Friday, May 16, 2025, Moody's Ratings downgraded the United States' sovereign credit rating from AAA to Aa1, marking the first time in over a century that the U.S. no longer holds a perfect credit score from any of the three major rating agencies. This downgrade, while not a sudden collapse, serves as a symbolic and material indicator of the waning strength of the U.S. dollar and the fiscal credibility of the U.S. government.

Moody's had held out longer than its peers—Standard & Poor's downgraded the U.S. in 2011, and Fitch followed suit in 2023. But now, all three agencies agree: U.S. debt is no longer considered risk-free.

The Reasons Behind the Downgrade

Moody's cited several compounding factors:

• A sustained increase in government debt over more than a decade.
• Rising interest payments, now significantly above those of similarly rated nations.
• Expectations that borrowing needs will continue to grow.
• Political instability and questions about the future of Federal Reserve independence.

While Moody's maintained a "stable" outlook, noting the strength of U.S. institutions and the constitutional separation of powers, it subtly warned that those very institutions are under stress. It emphasized that although the U.S. still possesses high creditworthiness, the downgrade was necessary to reflect long-term risks.

A Symbolic Collapse of Confidence

The downgrade is far more than a technical shift. Moody's has rated U.S. debt as AAA since 1917. Its change reflects not only fiscal degradation but also a broader loss of faith in American governance and stability.

It also comes amid increased political volatility. Former President Donald Trump has openly questioned whether he would preserve the Federal Reserve's independence and has made comments about firing Jerome Powell. Such developments contribute to a sense that the postwar U.S. consensus on financial policy may be unraveling.

What It Means for the Dollar

While this downgrade does not trigger an immediate collapse, it is a signpost on the road to global de-dollarization. The U.S. dollar remains the world's reserve currency and U.S. Treasuries are still the most liquid asset class, but cracks are forming:

• Growing debt and interest burdens make U.S. bonds less attractive.
• Geopolitical rivals (e.g., China, Russia) are accelerating non-dollar trade agreements.
• The weaponization of the dollar—through sanctions and SWIFT bans—has encouraged alternative systems.

Foreign governments may begin to diversify their reserves more aggressively. Institutions looking for long-term safety may weigh whether the dollar's supremacy is still justified.

Endgame Indicators to Watch

The Moody's downgrade does not mark the end—but it raises the stakes. The following developments would signal a deeper crisis:

• Another downgrade to A or lower.
• Central banks openly dumping U.S. Treasuries.
• Loss of Federal Reserve autonomy.
• Escalation of domestic political crises or constitutional breakdowns.
• Clear movement by global institutions away from dollar-denominated systems.

Conclusion

Moody's decision is not just about a number; it is about the arc of American influence. A century-long assumption—that U.S. debt is as good as gold—has officially ended. The downgrade will likely increase borrowing costs and inject volatility into financial markets. But more deeply, it reflects the diminishing perception that the United States remains a stable, responsible steward of global finance.

This moment may not mark the collapse of the dollar, but it undeniably signals the decline of an era.