Shark Tank star Kevin O'Leary has said that Fitch Ratings' decision to lower the U.S.'s sovereign credit rating suggests reduced confidence in the U.S. dollar and Treasury bills.
"There's no way to sugarcoat this at all. It's bad," O'Leary said Wednesday.
Late Tuesday, the credit rating agency reduced the nation's long-term credit rating from AAA to AA+. O'Leary pointed out that the downgrade primarily concerns the country's debt situation and repayment capacity.
Per O'Leary's analysis, the recent credit rating decline will likely prompt sovereign wealth funds to reassess their holdings in U.S. dollars. The lowered rating will then translate into higher borrowing expenses, exacerbating the federal deficit spending. American consumers, in turn, should be prepared to face escalated costs.
O'Leary also mentioned that car loan rates have risen from around five percent to approximately seven percent to nine percent. He also said that loan, borrowing and mortgage costs are expected to increase.
Fitch Ratings
After Standard & Poor's downgraded the U.S. in 2011, Fitch, under the ownership of media group Hearst, became the second major rating agency to remove the country's triple-A rating.
On Wednesday, White House economic adviser Jared Bernstein said on CNBC that the timing of Fitch's credit rating downgrade of the U.S. government didn't seem logical, describing the decision as bizarre and arbitrary.
In response to inquiries about the timing of Fitch's decision, Fitch Ratings senior director Richard Francis explained that the decision to downgrade the country's top rating on Monday was influenced by a deterioration in the country's debt profile. This decline was evident in the ratio between the U.S. general government debt and gross domestic product and occurred gradually over several years.
"And I think, obviously, the debt ceiling debate itself highlights that brinkmanship and polarization that we've seen, and it's happening every two years now since 2011, more or less," said Francis, as quoted by Reuters.
Opinions on Fitch Ratings downgrade
In a statement, White House press secretary Karine Jean-Pierre expressed strong disagreement with Fitch's decision. Likewise, U.S. Treasury Secretary Janet Yellen also criticized Fitch's decision, deeming it "arbitrary and relying on outdated data."
In a statement, Senate Majority Leader Chuck Schumer pointed fingers at House Republicans for the downgrade, holding them accountable for the adverse consequences of their irresponsible brinksmanship and potential default.
Some Wall Street experts played down Fitch Ratings' downgrade, with numerous analysts dismissing its significance. For example, Goldman Sachs commented that it would likely have minimal direct effects on the financial markets.
Mohamed El-Erian from Allianz suggested that the downgrade is more likely to be disregarded than to cause lasting disruptions to the U.S. economy and markets.
JPMorgan CEO Jamie Dimon also told CNBC that the downgrade's impact would not be significant. Despite this, Dimon finds it "ridiculous" that other countries hold higher credit ratings than the U.S.
According to data compiled by Bloomberg, Australia, Germany, Singapore and Switzerland are among the nations with the highest ratings from all three credit rating agencies.
Fitch rates Canada at AA+, while China, the world's second-largest economy, has an A+ score, three notches lower.