America’s First Credit Downgrade Since 2011 Reflects Growing Biden-Era Deficits

Back in President Barack Obama’s first term, he ran up unprecedented trillion-dollar deficits every year from 2009 to 2012, fueling a spirited debt ceiling debate in August 2011 that eventually caused the first debt downgrade in U.S. history. That fueled a 20% decline in the S&P 500 and a 25% rise in gold prices, from $1,498 on June 27 to $1,878 on August 22. That obviously didn’t happen this time around, when Fitch & Co, downgraded U.S. credit for the second time in history, but the situation is perhaps more serious this time, since the numbers are so much higher than in 2011, and the Biden Administration does not take spending cuts with any sense of seriousness, much less the emergency attention they deserve.

On August 1, 2023, Fitch Ratings downgraded U.S. Treasury debt from AAA to AA+, due mostly to the U.S. government’s rapidly worsening financial conditions. Specifically, Fitch referred to “expected fiscal deterioration over the next three years” and an “erosion of governance… manifested in repeated debt limit stand-offs and last-minute resolutions.” When asked about the timing of the downgrade, Richard Francis, a senior director at Fitch, told Reuters that the agency had long-standing concerns about governance and the U.S. debt profile.  Mark Sobel, a former longtime Treasury official agreed, saying, “Fitch isn’t telling anybody anything they don’t already know,” as “neither political party has evinced the guts to begin making the sacrifices needed on both the spending and revenue sides – which will only increase.”

What’s Ahead for Gold in the 2024 Election Year?

Right now, it looks like a repeat of the two aging and legally troubled candidates from 2020, Joe Biden and Donald Trump. Their legal (and Biden’s health) problems will dominate the debate instead of the all-important financial and geo-political challenges facing America, but it’s important to look back at similar times when high inflation and geo-political challenges like today’s wide array of potential problems faced us.

Let’s look at the Obama/Biden/Donald Trump years. The 2008 election was in the midst of a major financial crisis, as gold was rising in 2007 and 2008 while stocks were falling over 50%. Over the full year, gold beat stocks by a long shot, and gold was a clear winner in the last three election years.

Year                       Gold at Start of Year           Gold on Election Day          10-Month Gold Gain

2012                                       $1,531                                   $1,691                                   +10.5%

2016                                       $1,060                                   $1,282                                   +20.9%

2020                                       $1,515                                   $1,903                                   +25.6%

We don’t know for certain who will run in 2024 but the problems facing America are more severe than at any time since World War II if you count the rapidly rising debt, weakened political, military and social structure at home vs. rising threats from Russia, China and Middle Eastern powers. We need a strong challenger with a backbone and – dare we hope – some fair major news organization press coverage! However, because The Washington Post editorial board has never endorsed a Republican since it began endorsing presidential candidates in 1976 and The New York Times has not endorsed a Republican presidential candidate since it endorsed Dwight Eisenhower in 1956, that is unlikely. It is for these, as well as, many other geopolitical and economic reasons, that many financial advisors now encourage clients to regularly add gold and silver to their portfolios.