And Why the Bond Rating Agencies May Hold the Only Key to Ending It
By Lewis F. McLain, Jr.
I. The Standoff That Never Ends
Another fiscal year, another government shutdown.
The United States now governs by brinkmanship — running on a series of temporary spending bills that barely prevent collapse but never deliver stability. Each new “continuing resolution” buys only weeks of political truce.
In Washington, they call it negotiation. Everywhere else, it looks like a nation living paycheck to paycheck. It is actually worse than that. The U.S. has gotten by only by putting most of its excess on a credit card to the tune of $35,598,000 or $324,100 per taxpayer!
These short-term fixes, designed to “keep the lights on,” have become the defining symbol of America’s fiscal dysfunction. Lawmakers boast of avoiding disaster while guaranteeing the next one. The cost is not measured in missed paychecks alone, but in lost credibility — both with citizens and with the global markets that finance the republic.
II. Why the “Big Beautiful Bill” Didn’t Fix the Problem
When Congress passed the One Big Beautiful Bill Act (OBBBA) earlier this year, it was hailed as the long-awaited cure to America’s budget ills.
It was indeed a sweeping structural law — extending key tax cuts, revising welfare programs, and reshaping federal-state funding formulas.
But OBBBA was a policy framework, not an appropriations bill. It set the rules for how money could be spent but didn’t actually fund the government. The twelve annual spending bills that keep every agency running — from Defense to Education — remain incomplete.
Thus, the government shut down not because it lacked a vision, but because it lacked a functioning process. Even the worst person for financial management on planet earth could do better than the U.S. Government.
III. The Politics of Delay
Short-term CRs are not bureaucratic accidents; they are political strategy.
- They Preserve Leverage.
A short CR allows each side to claim the next cliff as bargaining power. - They Manufacture Urgency.
By setting artificial deadlines, Congress ensures every debate becomes a crisis. - They Diffuse Blame.
Everyone claims partial credit for “keeping government open,” while no one takes responsibility for its paralysis.
This cycle — a patchwork of temporary lifelines — has become normalized. Yet in any other organization, such repeated failure to adopt a budget would be grounds for a downgrade, a leadership change, or both.
IV. The Rating Agencies: Watchful, But Timid
The major rating agencies — Fitch, Moody’s, and S&P — continue to issue cautious statements, but their restraint now borders on abdication. One must remember that they charge a fee to the governmental entity being rated, they represent the bondholders! The bondholders are the greatest constituency to be found. There are 350 billion U.S. citizens. Compare that to the $37 trillion “constituents” they represent.
- Fitch warns that shutdowns “highlight governance challenges” but sees no immediate rating impact.
- Moody’s, more decisive, already downgraded the U.S. from Aaa to Aa1 in May 2025, citing deficits and political dysfunction.
- S&P notes that each week of shutdown could shave up to 0.2% from GDP growth but stops short of taking further action.
- Scope Ratings in Europe calls the shutdowns a “negative signal of democratic decay.”
They are not wrong — just toothless.
Bond rating agencies are worthless when they only rattle sabers, if that.
Warnings without enforcement invite complacency, not reform. If a sovereign borrower can repeatedly risk default on its own operations without consequence, the rating system itself becomes performative — an echo chamber of polite disapproval.
V. The Garland Precedent: When Ratings Spoke Loudly
There is precedent for courage I am aware of. In the 1970s, the bond rating agency visited the City of Garland, Texas in person — not to offer advice, but to deliver a direct warning message.
The message was simple: “Stop playing tough on fiscal decisions. Balance your budget responsibly or face a likely immediate downgrade.”
The City Council took the warning seriously. By the next meeting, they had adopted corrective measures, and the city’s fiscal health stabilized. The visit worked not because Garland Council feared markets, but because it respected accountability.
It’s a story quietly echoed in other cities of that era, I’m sure — times when rating agencies acted like stewards of discipline, not commentators on chaos.
VI. The Case for Action Now
If such resolve worked in a Texas city half a century ago, imagine its effect on Washington today.
Bond rating agencies have the authority — and arguably the duty — to intervene decisively.
They could collectively declare this message before October 1:
“The United States has two weeks to fully reopen and fund the government, or face a downgrade of more than one notch.”
That single sentence would do what months of posturing cannot. Markets would react within hours.
Treasury yields would rise, the White House and congressional leaders would receive immediate pressure from financial institutions and state treasurers, and public attention would snap to the true cost of dysfunction. By the way, do you know how much of the $37 trillion is owned by foreign investors? What happens if the day comes for their $9 trillion in holdings to mature, they take the money, and decide to invest elsewhere? Go to http://www.debtclock.org to appreciate how fast it takes to rack up another $1 trillion in debt!
It would no longer be a debate about ideology — but about national credit survival.
VII. Why This Matters
Bond markets are not emotional. They reward stability and punish delay.
The United States retains its privileged position — as issuer of the world’s reserve currency — largely because investors still believe in its reliability.
But belief is not infinite. Every short-term CR and every unending shutdown erodes the myth of American infallibility.
A bold, time-bound ultimatum from the rating agencies would instantly clarify what is at stake:
that U.S. governance, not solvency, is now the chief risk to U.S. credit.
VIII. The Moral of the Shutdown Era
The nation’s fiscal problem is not a shortage of dollars — it is a shortage of discipline.
The Treasury and Federal Reserve can print money; it cannot print credibility.
Congress treats shutdowns as leverage. Presidents treat them as bargaining stages.
And the bond market, by refusing to act, has become the enabler of dysfunction.
The rating agencies have a choice: to remain cautious chroniclers of decline, or to be the mirror that forces reform. Their ratings are not just financial metrics — they are moral verdicts on governance.
IX. Conclusion: The Rating That Could Save a Republic
“Credit,” wrote Alexander Hamilton, “is the soul of a nation’s economy.”
But in our age, it may also be the conscience of a government that has lost its will to govern.
The bond rating agencies can end this stalemate — not by writing reports, but by drawing a line.
Two weeks. No more delays.
Reopen the government fully or face a downgrade severe enough to awaken both Wall Street and Main Street.
If they have the courage to act — as they once did in Garland, Texas — they could remind America that accountability still matters.
Because credibility, once lost, cannot be borrowed back.
Lewis is a municipal finance expert living in McKinney, Texas. While semi-retired (after 52 years), he was once the Garland Budget Director, the Dallas County Budget Officer (first in Texas) and then a VP in Public Finance for First National Bank in Dallas (now Bank of America). After his first ten years, he started consulting for local governments (about 40).
He still consults with about 16 entities such as DART, Brazoria County and the cities of Denton, Groves, Highland Village, Killeen, Leander, McKinney, Midland, Pearland, Richardson, Southlake, Stafford, Victoria and Wichita Falls. He has written several hundred articles, essays and blogs, most of which can be found at citybaseblog.net. He has also given hundreds of presentations at workshops all over Texas and other states, including a training session for young bond rating analysts in NYC years ago.
He was the Executive Director for the Government Finance Officers of Texas years ago and had an Ethics Award created in his name.
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