A Leveraged Nation
The Prime Auto Loan ABS Market is Deteriorating Fast - Downgrade Imminent
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Ideally, every four years, the people of the United States elect a president to lead the nation with the intent to bring peace and prosperity to the country. We have checks and balances, as well as a constitution, to enforce the rule of law and maintain order.
For a moment, let us forget politics and the stock market. Let us purely focus on the welfare of the people and that of our country as a whole. We are in deep economic trouble. The United States is facing an economic identity crisis.
We want to state the obvious yet overlooked fact: The United States and its citizens are heavily in debt.
The USA is Downgraded
As of yesterday, Moody's, the last standing credit rating agency with an AAA rating, has downgraded the United States to Aa1, citing concerns about the nation's growing $36 trillion debt pile and higher interest payments.
Moody's first gave the United States its pristine "Aaa" rating in 1919 and is the last of the three major credit agencies to downgrade it.
The United States lacks fiscal discipline, and so do its citizens.
Consequences
The downgrade came as the tax bill failed to clear a key procedural hurdle on Friday, with hard-line Republicans demanding deeper spending cuts. Moody's downgrade of the U.S. credit rating could lead to a spike in capital outflow from the United States. This is because the downgrade reduces investor confidence in the U.S. economy, potentially causing investors to seek safer assets elsewhere.
Will this pressure China, Japan, and others to dump the U.S. treasuries?
Will the United States continue to borrow?
These questions and concerns are rightly justified. The possibility of the U.S. defaulting has just increased – yes, one could argue that multiple scenarios make this statement asinine; however, it is critical to remain objective. The downgrade could also weaken the U.S. dollar, as investors may sell off U.S. currency in favor of stronger currencies.
Moody's just forced the market's hand to look beyond the headlines.
Consumers
The majority of Americans remain positive1 about their standard of living, but rising home prices and the lack of retirement savings are increasingly making the American dream unattainable. We disagree with the S&P - living on credit availability/BNPL is, in our book, negative for consumer sentiments.
Home ownership has traditionally been a major factor in defining the American standard of living. However, rising prices now place home ownership out of reach for many. The s&p survey found that nearly half (47%) of those currently renting do not believe they will someday own a house.
The University of Michigan's preliminary consumer sentiment report2for May, released on May 16, 2025, highlighted growing public anxiety. The headline index dropped to 50.8, its second-lowest reading on record. Year-ahead inflation expectations surged from 6.5% to 7.3%, the highest since 1981.
Notably, the survey was conducted between April 22 and May 13. That timeframe includes the period after U.S. President Donald Trump announced that reciprocal tariffs on all trading partners other than China would be scaled back to a 10% baseline. It also includes responses collected a day after the US-China truce was declared.
In that context, the persistent collapse in sentiment and worsening inflation outlook suggest that consumers remain highly skeptical about the economic direction.
The data is real. The consumers are choking on debt. The longer we take to accept reality, the more painful it becomes.