America's racial inequality is a risk to its credit rating, Moody's says
- Racial inequality is higher in the US than otherwise similarly rated countries, according to credit rating agency Moody's.
- A sovereign credit rating is an independent assessment of the creditworthiness of a country, per Investopedia.
- Inequality in the US is also increasing, the Moody's report found. For example, the racial wealth gap between Black and white Americans has widened in recent years.
- Increased political polarization stemming from inequality makes the country more susceptible to an "event risk," the agency reports, or an incident that would cause the markets to take a strong dip, and make US sovereign credit more risky.
- On the other hand, addressing the racial wealth gap could boost the US economy by 4 to 6%, the report found.
- Visit Business Insider's homepage for more stories.
The wealth gap between Black and white Americans, as well as other forms of racial inequality in the US, is trending upward. And that could pose a risk to the country's economy, per a recent report from the credit rating agency Moody's.
In the face of economic changes in recent years, Blacks have fared worse than whites across the board, according to William Foster, Moody's vice president.
"These trends include globalization of trade, capital and labor; displacement of labor through automation; rising educational requirements alongside highly uneven quality of schooling; and uneven access to credit," he said in an online statement.
The average net worth of a white family grew 43%, to $61,200, between 1995 and 2016, while it stagnated for Black families at $35,400, the credit rating agency said, citing Federal Reserve data.
Though US institutions "remain very strong," the report reads, "political polarization often associated with high inequality and social risks stemming from entrenched racial inequalities can raise a sovereign's susceptibility to event risk," the report reads. An event risk can loosely be defined as an incident that causes a dramatic dip to a country's financial markets, causing the country's sovereign credit rating to take a hit.
Moody analysts said income and racial inequality are "potent forces" in the country that could further polarize US society.
The report also found that addressing inequality, for example, addressing the racial wealth gap, would boost the country's economy.
Citing McKinsey & Co. data, Moody's states that reducing the racial wealth gap could raise the country's GDP by 4% to 6% by 2028 and lift GDP per capita by $4,300, MarketWatch reports.
At least 26 other data points Business Insider has looked at lately speak to how persasive racism is in American economic structures.
Receive a daily update on your cellphone with all our latest news: click here.
Get the best of our site emailed to you daily: click here.
Also from Business Insider South Africa:
- Nestlé swears it isn't ending Peppermint Crisp and Quality Street – but some sizes are toast
- Truck drivers from Botswana keep catching the coronavirus in SA
- The Free State plans ‘extreme measures’ to lure tourists
- Durex condom sales are slumping as 'intimate occasions' disappear during the Covid-19 pandemic
- Like minibus taxis, Uber and Bolt will be allowed to load 100% capacity – but they’re not keen yet