(gentle music) - [Narrator] After the big tariff announcement, something happened that shocked economists, and it wasn't the stock market dropping, it was the value of the dollar dropping. Usually in times of market turmoil, it increases because investors are flocking to the US for safety. - We saw exactly the opposite.Money fled from the US for safety instead of to the US for safety for the first time in my memory. - That was a sign that something was getting different and that people weren't just shifting ...

Core Viewpoint - Moody's downgraded the U.S. government's credit rating from "Aaa" to "Aa1," marking it as the last major credit rating agency to do so, following S&P Global and Fitch [1][2] Group 1: Credit Rating Downgrade - The downgrade reflects concerns over growing fiscal deficits and elevated total debt, with the U.S. running over a $1.8 trillion deficit in fiscal year 2024 and having over $36 trillion in total debt [3][4] - Moody's indicated that the U.S. fiscal performance is likely to deteriorate compared to its past and other highly rated sovereigns, with expectations of larger deficits as entitlement spending rises [3][4] Group 2: Future Projections - Fiscal deficits could reach 9% of GDP by 2035, up from the current 6.4%, while total debt is projected to rise to approximately 134% of GDP, surpassing levels seen during World War II [4] - Annual interest payments on the debt, which accounted for 18% of revenue in 2024, are expected to increase to 30% by 2035 [4] Group 3: Legislative Impact - House Republicans' proposal to make temporary tax cuts permanent could add an estimated $4 trillion to the fiscal deficit over the next decade, excluding interest payments [6] Group 4: Market Reactions - Historical responses of the S&P 500 to previous credit downgrades show initial sell-offs followed by recoveries, indicating that the market may not react severely to the downgrade [7][10] - The muted market response to the recent downgrade may be attributed to prior warnings from Moody's and the established understanding of the U.S. debt situation [11]