On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about Moody’s downgrade of US credit and why he’s not worried about the U.S. debt level.
Related to this episode:
How will Moody’s downgrade of US debt affect mortgage rates? | HousingWire
https://www.housingwire.com/articles/how-will-moodys-downgrade-of-us-debt-affect-mortgage-rates/
Enjoy the episode!
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.
Related to this episode:
How will Moody’s downgrade of US debt affect mortgage rates? | HousingWire
https://www.housingwire.com/articles/how-will-moodys-downgrade-of-us-debt-affect-mortgage-rates/
Enjoy the episode!
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.
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NewsTranscript
00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the credit downgrade
00:11from Moody's, the impact that's having on mortgage rates, and why he's not worried about
00:16paying down the country's debt. First, I want to thank our sponsor, Rocket Close, for making
00:20this episode possible. Logan, welcome back to the podcast.
00:25Sarah Wheeler, the U.S. debt was downgraded.
00:32I know. I know you wrote a good article for us on Sunday night because there was lots of
00:36questions about this. You know, we just have to do these Monday podcasts to talk about,
00:41you know, on Tuesday mornings because stuff happens. Man, that was nasty. They did that
00:45right on Friday afternoon, you know, just like when, you know, everybody was getting done.
00:52And of course, as you can imagine, all weekend, you know, everybody's, oh, my God, eight,
00:58nine, 10% mortgage rates. You know, people are sending me videos of people saying this
01:03is it. So I'm going to explain the debt downgrade. But before we go into that, what we're going
01:09to do is this is for Moody's. Anybody that is Moody's, works at Moody's out there who gave
01:15the debt downgrade it, we're going to pile up a piece of garbage and then shoot it into
01:20the trash can. That's the first thing that you should think about when you think about
01:25a debt downgrade and it being anything meaningful. It was trash back in 2011 when S&P downgraded.
01:33It was trash in 2023 in August when Fitch downgraded. And this was like trash.
01:38If Germany's getting AAA rating and we're done, this is why market people, even the anti-central
01:48bank movement people are like, dude, this is lame, right? You know, so I think the best
01:55way for me to explain this is back in 2011, S&P downgraded credit rating. It was a whole
02:01big thing, right? And back then it was like, oh, my God, mortgage rates are going to go to
02:0510%. A 10-year yield is over debt. We have whatever, over 10 trillion in debt. We're in
02:10trouble. Literally the entire time after that, the 10-year yield went lower. QE was actually
02:17ended in August of 2011. So the bond yields were actually, bond yields actually were going
02:22lower when QE ended, which that's a whole different other conversation for another time.
02:26But in this sense, back then we had our debt downgraded. The entire cycle, right? When I
02:36started forecasting 10-year yields in my yearly forecast, same forecast forever in the last
02:42decade, 1.6 to 3%. Why? Because Fed funds rate policy is zero. Inflation wasn't breaking
02:48out. We could barely get to 2% half the time of the decade.
02:52Okay. So that entire downgrade meant absolutely nothing to the debt or anything like that.
03:00The US is Godzilla on super steroids compared to other countries. So if other countries like
03:08Germany has better rating than us, you've got to be kidding me. So we go further out. And I think
03:13a lot of people forgot about Fitch downgraded the US in 2023. And back then, I think it was August,
03:22of 2023. They downgraded the debt. The Fed was not done with its rate height cycle. And for those
03:29part of the Instagram family, we're like, okay, this 434 level is really key. If the Fed gets
03:33hawkish here, man, we could go to 5% on the 10-year. And being at 5, even if the 10-year yield had
03:39gone to 5 to 5.5, even to 6.25, where the Fed funds rate, it wasn't like completely out of the
03:45norm on historical presence. But they downgraded the debt. The Fed got hawkish. 10-year yield went
03:51up high. All of a sudden, the Fed president was like, why is a 10-year yield doing this?
03:55Then they called on call and said, okay, we're done. We're done hiking rates. Guess what happened
03:59when the market knew the Federal Reserve was done hiking rates? What traditionally happens in
04:04economic cycles, the 10-year yield goes lower, bond markets rally, mortgage rates go lower,
04:09all with the Fitch downgrade in there. So let's talk a little bit. Just give a backup,
04:16just a quick explanation of what it means when any of the credit rating agencies
04:20downgrade our credit. What does that actually mean? Nothing. Depends. If you go from AAA to AA,
04:28you're just saying, you guys remember the movie Team America? It was like the Muppet. It was like
04:37I forget the concept, but they made a joke that Hans Blix was going to write a letter to North Korea
04:47to tell them that they were bad. And that's the UN was going to tell North Korea not to go for
04:53nuclear weapons. And this is basically credit agencies telling the US, you're bad. Don't do it.
05:00Listen, there's an article that I wrote in 2019. I highlighted why I thought we're going to have
05:07like 71 trillion in debt in 26. This is before COVID. This is everything. I like the debt baby
05:13is like going to be born in 2024 all the way to 2057. So just by a normal debt curve, population
05:19demographics, we're going to 71 trillion. Anybody who knows accounting would do this. It's never,
05:25the bond market knows this anyway. Right. And it's like, it's not like the 10 year yield is at 15 or
05:3120 or 25% or countries that are like broke or whatever. So our debt is going to grow a lot faster
05:38because we're getting older. Population growth is slowing down. You know, we're not a fast growing
05:44economy anymore. Just like a lot of mature, wealthy economy. I think the debt to GDP is what,
05:49125, 126, like Japan's at 260 right now. So the fear of it was that if the debt downgrades,
05:59that it would like corporate bonds or something that governments and banks would have to sell
06:05their treasuries because they legally can't hold them. That's not what's going on. It's basically
06:10like a warning shot or something. Hey, you guys better get your act in order. You guys better do it.
06:16We're going to downgrade you and nothing really changes. And this was a tactical one because this
06:21was right before the Republicans can't pass their big, beautiful bill just because there's a few
06:26holdouts, but it was done like that. So the problem is that us as market participants, we know this,
06:33so we don't take it seriously, but for like people out there, they don't know because it doesn't get
06:38explained to them. So we always say it's trash. It was trash in 2011. It was trash in 2023. It's trash.
06:44The 10-year yield went up. Oddly enough, I thought the news from Japan was more meaningful last night.
06:50Japan's 30-year yield is like an all-time high. Japan's trade deal with the U.S. are hitting some
06:57snags right now. So I thought that meant more because when we talk about de-escalation on the
07:04trade war for China, we still have a lot of tariffs, like big percentage tariffs on everyone.
07:09And we're supposed to get like 90 deals in 90 days and there's not much happening. So when the
07:15Japan news came out last night, it actually pushed the 10-year yield a little bit higher. So the 10-year
07:20yield, this is Monday morning. We went from, I think, what, 449 to 454. Now we're back at 448.
07:28Thank you all for playing. We all survived the Moody's debt downgrade. So this is just,
07:33it's not as important as people make it out to be, but it's the fact that Germany is still rated
07:40AAA, whatever, and we're double, just seriously. That's a joke. It's embarrassing. It's embarrassing
07:47joke. So if anybody from Moody's listening, you're embarrassing yourselves. You're an embarrassment to
07:52this country.
07:53So Logan, this is one of the questions you get a lot when you are going around the country talking.
07:57People want to talk about the debt because they're worried about the debt. And you just said,
08:01you don't have to worry about the debt. Yes, it's going up. Yes, it's no big deal.
08:05How do you square that with, you know, like, I mean, we're having this whole budget conversation
08:09and so much of the budget has to go to pay off the debt. So give us your dissertation on why you're
08:14not worried about the debt. Okay. So the easiest way for me to explain why I don't care, why I'm never
08:21going to care, until other weaker economies and countries have debt blowups, we're not having it here.
08:29So back in 2011, people said, we couldn't borrow any more debt. We're broke. And literally the
08:37entire decade, we had deficits every year. And every single year, we said, we have a debt monster.
08:43We're going to pay the price, right? It's not Canada or Mexico that are going to suffer. It's
08:49the US, the wealthiest country in the world, the most powerful military, the wealthiest economy,
08:55the unbelievable middle class. We're the ones who need to be worried about the debt. Okay. So other
09:01economies get a free pass, but it's the dollar that's going to, this is a conservative mindset
09:09and a liberal mindset. There's a lot of progressives who say the debt's a problem, but for other reasons,
09:14it's never happened. Men have died in this country thinking that federal debt was like a real big
09:20problem. It's just not, we can grow the economy and keep the debt to GDP levels well far away from
09:27what even Japan is. So my contention has been that it's always been a boogeyman and here comes COVID.
09:34So what happened during COVID? We exploded the deficit. We exploded the debt until the federal
09:40reserve started hiking rates and everything, the 10 year yield interest pay, everything was low,
09:44right? So Fed policy to me matters more because we have an unfair advantage. Like I always think
09:50the one of the things that's maybe not the best, the dollar is literally too strong for a lot of
09:56things in this context. So I'm not concerned because I'm going to be 50 this year and I thank God I
10:03wasn't one of those guys that sat there and worried about federal debt for 20 or 30 years because some of
10:08those men died going to the grave and nothing's happened. And we're sitting here, it's 2025,
10:15the 10 year yields at 450. We just had pandemic inflation. We have $37 trillion in debt. We have
10:22$100 trillion in unfunded liabilities and the 10 year yields at four and a half. And the growth rate
10:28of inflation is a two handle on CPI and PC. If we didn't have a trade war, we wouldn't even be worried
10:33about inflation happening in the second half of the year. It was a boogeyman. It was always going
10:39to be a boogeyman because people in power need to have boogeyman because you can't just say,
10:46don't worry about the debt because then this group wants this and that group wants that.
10:50I encourage everyone there, the, there was a link to the article I wrote in 2019. And I was like,
10:55I was outlining my case. Like nothing is going to change unless inflation like really breaks out.
11:00And it was a pandemic global inflation that did it. It is now the federal reserve saying that
11:06supply chains are now going to be the concern going out in the, it's not that the dollar is
11:11going to devalue itself and we're a third world country and Mexico is going to buy Canada and
11:18Canada is going to buy New York. You know, it's just, it was, it was overdone. And I think this one,
11:26what, what I, what I'm actually encouraged is that it wasn't as bad. It was in 2011,
11:32or even in, in some cases in 2023, I think people just don't take it seriously. If you really thought
11:40a country, you would downgrade their debt to like much lower levels. And we're all here. We know
11:46what's coming. Nothing's going to be, nothing's really going to change here. The debt's going to
11:50constantly grow and go and majority of the debt we own. I mean, a really good example is China
11:55is now not the second biggest holder of treasuries. It's the UK. We were told we,
12:02we have commercials, go look at YouTube and look at China owns the US. They were making commercials
12:07that, Oh my God, the Chinese own all our debt. We're working for them. Y'all crazy. It's just
12:13crazy. No, it doesn't work that way. And China was selling its treasuries for years and nothing
12:20happened until the fed started hiking rates. And then again, 65 to 75% of where the 10 year yield
12:26and mortgage rates can raise is fed policy. Go back and look at the 10 year yield all the way down to
12:311910. And then look at it now and look at mortgage rates. Look at everything there. There it is.
12:38Right. So I, I'm just like, I understand why Moody's did it, but it's like, we got all these videos of,
12:46Oh, here that comes here. No, no. The mortgage pricing got worse today. Spreads got a little bit
12:52worse, but it's not the, we need to be less than Germany. Sovereigns, you know, really? Come on.
13:01Right. I can see that particularly really bothers you. It's stupid. It's embarrassing. It's like
13:08embarrassing. It's like a, it's like a terrible basketball player coming to an NBA in practice
13:13and say, Hey, put me in the first drink. Get your out of here. No. Okay. So, but my question is less
13:20about Moody's and more about the debt in general, because it's like, if you have to keep paying more
13:25and more on the debt, doesn't that come due at some point or is what you're saying? We will always
13:31grow more than the debt. We will always be able to pay that off. And it's not a problem.
13:35We are never going to pay the debt down. It is not going to happen. It is.
13:39And why is that okay? I don't understand. Why is that okay?
13:42I have ran every single, look at Japan. Japan's debt to GDP is 260%. It is double ours. They're dying.
13:5240% of their population will be dead by the end of the century. And they're borrowing at low rates.
13:59Right. So, um, this is how budget, I mean, we, we own most of our debt still, like we owe it to
14:06ourselves, right? That's how economies move. Remember we're withdrawing a debt supposedly to
14:12bring the 10 year yield lower. Right. And guess what happened? What happened with Doge? It was like,
14:17we've gone from 2 trillion to 1 trillion to 800 billion to 600 billion to 400 billion to 200
14:23billion to what, you know, poor man, Paul, I saw him on TV. He's like, why are we needing a $5 trillion?
14:29By the way, Trump is very clever with this, by the way, homie went out there and asked for a $5
14:34trillion clearance pass on the debt ceiling. See, he knows how to play the game. He doesn't care about
14:40the debt. Are you kidding me? You think these are like, you know, if you were serious,
14:45if you're authentically serious about debt, you would raise taxes, you would cut mandatory spending,
14:52and you would try to balance a budget with our demographics, which would be terrible. You'd be
14:57voted out of Congress and just embrace the fact that you're living in the most powerful country
15:02in the world. And you didn't have to worry about this ever. Right. So this is just the reality.
15:06And I had a good conversation. Somebody said to me, but, but Logan, the, uh, the mortgage rates and
15:12the 10 year yield went up when the fed started cutting rates. Yes. And mortgage rates fell
15:162% without any rate cuts. Why? Cause the 10 year yield thought the U S was going into recession
15:21and breached the hoarder line. And, uh, you know, Sarah and I, we've had this talk. I said,
15:27boy, the 10 year yield is really pricing in a lot of weakness because the fed funds rate is up there.
15:31Well, what are we doing down here? You you're assuming that the economy was breaking. If it didn't break,
15:37yield shut up. And this is how it's worked for 80, 90 years. There's nothing abnormal here. Um,
15:44you'll have bursts of inflation. War is inflationary, right? Price controls, right? The 1970s
15:51stagflation, inflation, oil shock, labor force growth, housing was booming out there. That was
15:56inflationary global pandemics, inflationary bond yields go up, but it's really fed policy. The United
16:02States is, is the only real superpower left. Why do you think the year was created, right? Why do
16:09you think the bricks are trading tangerines and stuff is because the dollar is too strong. We are
16:15king for a reason. So these boogeyman things are, are, are not, uh, Sarah, you and I are going to die
16:22and we're not going to see a debt blow up. If the UK, if Germany has a debt blow up in the UK and Japan
16:28and China, then we could have this conversation when it's going to hit the U S shows, but guess
16:32what? The U S even in that environment, King dollar for a reason, bond markets here, people come to us
16:39for safety in the dollar and everything. Those other countries, they would all explode first.
16:44And if you just had that mindset since age one, you would have been correct.
16:51Okay. See, I mean, I think the thing that's so confusing about this is like
16:55paying off the interest on that debt is, is a big part of the budget. That's why when
16:59Doge was saying, we're going to cut this, we're going to cut that. It's like,
17:02you don't get to that level of cuts unless you're cutting Medicare or social security. I mean,
17:08there's just not that much to cut. So the big, the big items in the budgets are all mandatory
17:14payments. That's why I wrote that article in 2019. I was like, guys, the mandatory payment thing is
17:19about to explode. It's really actually years, 2024 to 2057. This is before COVID and everything.
17:24Everything happened. So as long as the economy can grow, right, the debt to GDP levels, it's
17:30interesting how Bissette has now changed the tune to, we got to grow the economy to a certain level.
17:35You didn't have the cuts there, right? So you cut a little here. If you were really cutting things,
17:41you're going after the big mandatory payments, which, you know, you got to cut social security,
17:45you got to cut Medicare, you're going to get voted out, of course, but still,
17:50I always tell people, you live once in this world. And I've had this mindset for the last 10 years.
17:58There are certain things to worry about. This is really not one of them. If you're one of the
18:03doomsdayers, like, you know, if you want to get a downgrade and whatever the budget has to be passed,
18:09there's no balanced budgets here. It's all a lie. Both Republicans and Democrats have lied to you for
18:15decades. Basic arithmetic makes this impossible with our demographics. Why? Because we're getting
18:21older. The baby boomers, right? Our elderly dependency ratios are just about to explode
18:28because we're aging. Population growth is slowing down, right? This is what older wealthier economies
18:34embrace it. Embrace it. But hopefully now, after 2011, after 2023, after today, these debt downgrades
18:43aren't as material as, let's say, a corporate downgrade where you have to sell the company
18:51or you can't hold a junk status. These are two different things. And that's why you never look at
18:58household credit debt and compare it to government debt. It doesn't work that way.
19:05We've been expanding. As long as we're growing, a growing population, an elderly population,
19:09the debt's going to grow. And this was done after World War II. We were cooked after World War II when
19:17we had the baby boomers having kids and then everything and then population growth. And this
19:21is the way it is. But don't worry about this doomsday scenario that we're broke or that China
19:28owns us. Those are the worst. I encourage everyone, go to YouTube and say, China owns us and go watch
19:33how terrible those commercials were. Like the Chinese students are out of college and they're
19:38like, oh my God, the U.S. works for us. No, it doesn't work that way.
19:45Okay. Well, thank you for breaking down what is going on with the credit market being downgraded,
19:52our debt. Let's talk about the tracker because you just released that this weekend. Very interesting.
19:58You went, you really explained mortgage spreads and how those have affected mortgage rates. So let's
20:04talk about that. So oddly enough, the evil villain of the mortgage rate world is bad spreads, but this
20:12year, wow, you cannot. And the thing is, I realize mortgage spreads is not the most, like not a lot of
20:19people know about it. That's not fun. But if you did not have improvements on the spreads this year,
20:25we would not have 15 straight weeks of positive year over year growth data. Now, remember when we
20:31are the last two weeks, we're 13 and 18%. When you're working from such a very low base, you can
20:36have very high percentages of growth. That first kickup. We've always talked about this. When that
20:42first kickup happens, you're going to get some very high percentages taken in context. It's nothing
20:47like if we were really bursting out in housing, we're 15 to 25% year over year, every single week,
20:53no equivocation. We're not having that kind of growth. But if the spreads didn't improve,
20:59mortgage rates would be near 8% today. With 8% rates, we were not having 15% year over year
21:05growth. The builders would be in much more stress. We'd have less housing production. We'd have less
21:11new home sales. We'd have less existing home sales. So oddly enough, one of the best villains in this
21:17cycle is actually a positive story because the spreads got better. And for those that read the
21:22tracker, you can visually see, we break out the spreads in 2023, 2024, and 2025. And as the
21:28market volatility compressed a little bit, the spreads got better. It wasn't a good pricing
21:33today with the spreads. They bounced up higher. But man, if we didn't have that improvement,
21:40whole different story we're talking about in housing.
21:42We'd be at 8%, right? More?
21:44We'd be near 8%. Listen, when we're above 7.25, you start to really see,
21:51like, you know, even in the, like, for example, a good example I use is last year,
21:57the 10-year yield was going up and mortgage rates got to 7.5%. 7.5% had four, out of an 18-week
22:05period in the first half of the year, we had 14 negative prints, two flats, two positives,
22:10only two positive weekly prints. Zero, zero year over year growth prints. Here, the 10-year yield
22:18was going lower, spreads were better, positive year to date, nine positive weekly, six negatives,
22:25three flats, but 15 straight. It isn't much. It isn't, this is not like home sales are booming
22:30or anything like this. But this is happening with elevated rates, and that elevated rates
22:34would have been higher if the spreads didn't get better. So in the tracker, I show you guys a whole,
22:40the history of spreads going back to the 1970s, before I was born. Not before Sarah was born,
22:46but before I was born, we went back there to that time frame, and we got to talk about the spreads,
22:51and then you guys could see how it moves with economic cycles. And it was really bad in the
22:571980s, man. We had almost 6% spread. So realistically, we would not have had 18% mortgage rates if the
23:05spreads weren't as bad. It would have been in kind of the 12 to 13 range, but that's how awful the
23:11spreads used to be back then. Okay. Thank you for, you had to throw in something about my age. I'm
23:17not that much older than you. Well, a little bit older. Yeah. Don't worry. I'll join the 50 plus
23:27crowd in a few months. Okay. Yes. I'll be right there with you. Oh my gosh. Logan, thank you so much
23:35for explaining all this to us. Encourage our listeners, go and read some of the stories he's
23:40written. He gets into a lot more detail. And there are charts, which we can't really do on a
23:44podcast. Yeah, you can't do on a podcast. But again, I get it. I saw all the videos. Thank you
23:52all for sending me those videos over the weekend of people saying 8% to 10% mortgage rates very soon
23:59because the debt's going to blow off. We're broke. People, there are jack leaps out there who are just
24:07trying to scare you for views. And this is just who they are. Like, like you live once in this
24:13world. You think about you, you have to ask yourself, you live once in this world and you're
24:17going to be known for doom porn posting all the time. So I'm encouraged to see that people come to
24:24me first and, and look at this. And usually I have a one, I have a one word answer, trash, trash,
24:29garbage, you know, these, these videos are garbage, right? The guy didn't even make sense. It's not even
24:35the right, you know, so good. I, I, I'm very happy that people are coming to me and asking. And then
24:41I go, yeah, that's, that's not it. And here we are today. And you know, it's before we got on this
24:45podcast, 10 year yield was almost flat for the day. Right. And Germany, Germany still has a better
24:52credit rating than us. That bothers you so much. Thank you for being on. We will talk to you again
24:59soon. And thanks for jumping on, on a day that we don't normally have you on, but we are maybe switching
25:04you to earlier in the week, having you on a Monday and Tuesday and then Friday, just because so much
25:09happens over the weekend. Yeah. You just don't know these weekends, right? These weekends. And then
25:14if we, if we only come on Wednesday, it'd be like two days after. So yeah, we're going to, we're going
25:19to come on Mondays and Tuesdays just so we could get the Friday news and then the Monday news. So
25:23and then working from there. It's not boring. It's not boring. I'm telling you the last decade was,
25:32was very boring. It was a very slow growth cycle. Not much really was happening on and people
25:37over-exaggerated stories back then, but those stories weren't really that big here. Y'all got
25:42some crazy stuff going on every year, man. Trade war. It's like 24 the movie, but for economics,
25:48right? I've always said this, I feel like Jack Bauer, you know, that's what I feel like 24 seven. I got
25:55to do. That's why we have Instagram. Like we do 24 seven Instagram stories all the time. Cause we,
26:00there's nothing, there's something happening. I actually saw Chloe, the, uh, a comedian,
26:05uh, uh, at, at the improv. I love Chloe. She was funny. She was making fun of my hair too. She's
26:11like, wait, you, you got way too much hair for this crowd. Cause like 90% of the guys were bald
26:15and stuff. And they were like, Oh, so I going to, uh, with you to a comedy club. No, no way.
26:22They, there's no way they pick on you the whole time. I'm more prone to go on stage and start,
26:27you know, you know, busting some of my own jokes out there. Oh my gosh. All right. Well,
26:33we will talk to you again soon. Thank you, Logan.