I’ve previously covered the risks to the USA’s sovereign credit rating due to the massive expansion of their public debt to $11 trillion, and growing. Instead of downgrading America’s rating – as Moody did with Japan when their public debt exploded in the 1990s – Moody’s has created sub-categories for AAA rated economies to describe debt: considerable, moderate and limited debt challenges.
…the UK, United States and Ireland…face considerable challenges to their debt positions as they loosen fiscal policy to fight recession….
The size of the U.S. and UK economies, financial markets and capital flows and relative debt levels to growth mean policymakers have more scope to loosen fiscal policy without endangering the public finances too much.
That’s seems like a contradiction. I am not sure if the credit ratings agencies really have the where-with-all to change the credit rating of the USA. Take for instance this snippet from ABC’s Q&A:
PETER COSTELLO: We put a lot of effort into having the Commonwealth re rated. We got the Commonwealth rerated up to triple-A after two reratings, and, you know, Moodys and Standard & Poors and everything else give us a triple-A rating to borrow just at the time when we extinguished all debt, and was’nt that nice. They said, “Now that you don’t want to borrow, you can actually borrow at a triple-A rating”.
Whereas the US Treasury has debt coming out of the wazoo with the economy literally collapsing, yet their credit rating remains the same.