Free Markets, Free People

debt ratio


Two credit rating services warn US about possible downgrade in rating – again

While all the angst and hang-wringing continue over the Giffords shooting and the false flag of “vitriolic rhetoric”, Moody’s and Standard & Poor’s Corp have again warned the US it’s credit rating is in jeopardy:

Moody’s Investors Service said in a report that the U.S. will need to reverse an upward trajectory in the debt ratios to support its triple-A rating.

"We have become increasingly clear about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the U.S., the likelihood of a negative outlook over the next two years will increase," said Sarah Carlson, senior analyst at Moody’s.

Standard & Poor’s Corp. also didn’t rule out changing the outlook for its U.S. sovereign-debt rating because of the recent deterioration of the country’s fiscal situation. The U.S. has a triple-A rating with a stable outlook at both raters.

"The view of markets is that the U.S. will continue to benefit from the exorbitant privilege linked to the U.S. dollar" to fund its deficits, Carol Sirou, head of S&P France, said at a conference in Paris on Thursday. "But that may change. We can’t rule out changing the outlook" on the U.S. sovereign debt rating in the future, she warned. She added the jobless nature of the U.S. recovery was one of the biggest threats to the U.S. economy. "No triple-A rating is forever," she said.

Note the line I emphasized.  That is the primary reason it hasn’t happened yet.   The dollar is the true benchmark currency of the world.  Or perhaps a better way of saying that is it is the benchmark currency of the world at least for the time being.  But busting through 14 trillion dollar debt ceilings and continuing uncontrolled spending is a very quick way to have other countries consider other currencies or perhaps a market basket of currencies to replace the dollar.

If that happens, our triple-A rating will disappear faster than a pizza at a Weight Watchers convention.  But even if it doesn’t, we’re well on the way to a downgrade anyway:

The most recent official figures show the ratio of federal debt to revenue averaging 397% of gross domestic product in the period to 2020, while the ratio of interest to revenue will rise to 17.6% by 2020, from 8.6% in the last fiscal year. "These figures are "quite high for an Aaa-rated country," Moody’s said.

Debt affordability is "very important to the rating process," Ms. Carlson said. U.S. general government debt affordability, including states and municipalities, is "rising over time to a high level for an Aaa-rated country," the report said.

Or said more succinctly, the only thing keeping us at the Aaa level is the fact that we are the home of the dollar.   Otherwise the ratios above would most likely have seen us downgraded already.

Comforting, no?

~McQ

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