The decision by credit rating agency Standard & Poor’s to downgrade the United States after markets closed on Friday may have kicked up political consternation and triggered a market plunge, but it also raises important questions about the reliability of credit ratings and, for that matter, the firms that bestow them.
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Just over a dozen countries currently have an AAA—or lowest-risk—rating from each of the three main rating agencies: Moody’s, Fitch, and Standard & Poor’s. Until this weekend, the United States was among them. (It’s now roughly on par with Australia, which also has two AAAs and one AA+.)
So, which countries are among the lucky few that still have perfect ratings from all three firms? The United Kingdom and France, just to name a couple. S&P apparently thinks that both the U.K. and France are safer investments than the United States.
The United States still has a higher per-capita GDP than most countries, including both the U.K. and France. Last year, the U.S. GDP grew 2.9 percent—almost double the U.K.’s 1.4 percent and France’s 1.5 percent. Between April and June of this year, the U.S. GDP grew 1.3 percent while the U.K. economy grew 0.2 percent. A June forecast from the Bank of France estimated that the country’s economy would grow 0.4 percent in the second quarter. (U.S. growth, granted, is still slower than it used to be.)
As a percentage of GDP, both the U.K. and France have a higher percentage of external debt, or debt owed to outside bondholders. In 2010—the latest year for which the Organization for Economic Cooperation and Development has numbers—U.S. external debt was 61 percent of GDP, compared to France’s 67 percent and the U.K.’s 86 percent. Austria also maintains a lowest-risk rating from all three firms, and its external debt was 66 percent of GDP last year.
Let’s not forget unemployment. Our July 2011 unemployment rate figure was 9.1 percent. That’s higher than the U.K.’s, which has hovered around 7.7 percent, but it’s lower than France, which had 9.7 percent unemployment in June.
S&P, in explaining the historic downgrade—the first in U.S. history—cited both the U.S. debt burden and the political brinksmanship over the debt ceiling as reasons it lowered the credit rating of the United States to AA+, with a negative outlook.
So, what do the ratings mean, really? It seems to be a question that economists and investors are asking, too.
“France is not, in my view, a AAA country,” a UBS economist told Bloomberg. And yet there are no indications that France will face a downgrade, the Wall Street Journal reports. In fact, all three of the rating agencies recently affirmed France’s triple-As.
Credit rating agencies have taken a collective hit to their reputations for issuing flimsy triple-A credit ratings on securities that collapsed and helped trigger the financial meltdown. A Senate investigation earlier this year identified the firms as “a key cause” of the financial crisis. Documents released by congressional investigators also pointed to serious conflicts of interest that caused some ratings firms to bend to the wishes of the banks that paid for their ratings.
As we’ve written, some of the same problems with company culture and inaccurate ratings have persisted. Meanwhile, the Office of Credit Ratings—an office created by Dodd-Frank, the financial reform bill, to oversee these firms—hasn’t even been set up because Congress didn’t allocate funds for it. Other efforts written into the measure to lessen U.S. reliance on ratings and open up the firms to more liability have been slowed or stalled altogether.
Wiping out the references to credit ratings in U.S. law is a “harder task than the legislation assumes,” said Barbara Roper, director of investor protection for the Consumer Federation of America. The downgrade, she thinks, may provide just enough impetus to keep those efforts moving.
–Marian Wang, ProPublica
I think it’s important to point out the S&P report also said:
“Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.”
Killing the messenger. Check.
LAC, read the damn report mentioned in the first letter. This is from the published report that accompanied the announcement of the downgrade. I know that like most Teabaggers your eyesight gets all fuzzy (like your thinking and your math) when you read something that doesn’t fit what Dick Armey and the rest of your big business leaders tell you to think, so let me spell this out for you:
Standard and Poor stated with no equivocation that THE REASON THEY DOWNGRADED THE US DEBT RATING FOR THE FIRST TIME IN HISTORY IS BECAUSE THE REPUBLICANS REFUSE TO LET THE BUSH TAX CUTS FOR THE WEALTHY EXPIRE!!! That’s it. Nothing in the report about “entitlements”, TARP, stimulus, Obama, none of that stuff you spout. And nothing about the Democrats. They place the blame squarely on the Teabagging Republicans, and they put it in print!!!
I don’t expect you to hear this on Fox news, but I have to wonder why we don’t hear it on MSNBC, CNN CBS or any other “News” organization either. They just prattle on about how both side need to compromise, bipartisanship and the rest of their Kumbaya horseshit while we go down the tubes.
And we have to remember that S&P and Moody’s were in collusion with the International Banks and fraudsters to certify that the garbage mortgages they bundled and sold were AAA rated, or just as safe as US Treasury bonds! Italy raided S&P offices in Rome yesterday after they downgraded Italy’s rating.
http://www.guardian.co.uk/world/2011/aug/04/police-raid-milan-moodys-standard-poors. Don’t loose sight of who really benefits when Governments are downgraded and interest rates rise, THE INTERNATIONAL BANKS THAT HOLD THE DEBT! Surprise, surprise.
So, LAC you like the checklist format? I’ll work one one for you and post it later.
But for now, look around, you are witnessing the greatest event in world history. The consolidation of power in the hands of the international moneybrokers and the formation of the fabled one-world government. And LAC, if your around in twenty years to watch your grandkids live with a boot on their throats that will make Nazi Germany look like Sweden in the ’70s, you can tell them you let it happen because you were busy spreading the word about Americas real problem, Union Thugs and teachers pensions.
Kyle Russell says
The best part is that this didn’t even make it more expensive for the government to borrow, as one would expect it to. Why? Because investors aren’t worried about the debt: http://www.sudoexec.net/2011/08/how-the-bond-market-works/
> GDP per capita: $39,057.444
Canada has a solid triple-A rating, and its deep trading ties to the U.S. does not jeopardize it, even if the U.S. has a troubled triple-A with a negative outlook. Canada has vast natural resources and its citizens mostly avoided the real estate and debt bubble that hurt the U.S. The population is under 34 million, its GDP is about $1.33 trillion, and public debt at the end of 2010 was a mere 34% or projected GDP. Neither Moody’s nor S&P have any issues with the triple-A ratings and stable outlook, and our take is that Canada is perhaps the safest triple-A rating of all nations in the Western Hemisphere.
Add Canada amongst others to the list of triple AAA standings.
And it will be because 51% payed N O income tax and over 30% take home some rebates on non paying paying, and OBAMA’s method of creating an atmosphere for jobs I E BOEINGS S,C. deal; tthe current regulations on energy, the threat of cap trade, the union card sign up ,the EPA moving with all the executive power to no drill for oil the arrogance of refusing to negoitate in good faith, the continual nightly campaign fund raisers ETC ETC ETC> n
some guy says
Yes it does say that PART of the down grade is because of the “lost” revenue from the Bush tax cuts But it is 950 billion over ten years. I use the ten years as they have all their stats in that time frame so I take it as that is the amount of time and $$ they are saying. BUT if one is to realy read it they also put blame on the GROWING debt and that 950 Billion would not cover it. They also say that they have no faith that we will cut what was in the last deal in DC. The problem is on the spending side the “cuts” that arein the deal will NOT reduce 1 cent of the debt we have all it may do is reduce the amount of more debt.
Nort, Teachers pensions and union thugs are only symptoms. The core problem is world socialism. That’s what’s putting the boot on all our necks — even yours.
LAC, I wish it was that simple. This is the distraction they are selling you, and there’s nothing I can say to convince you otherwise. That’s why they call it Propaganda. We all know there is something wrong. We are angry. Our righteous anger is being channeled away from the reality that would have us stand against the powers that are stealing the world away towards our neighbors and allies that are standing in their way.
Anyhow, I believe it’s too late to do anything about it.
Oh,and LAC, You didn’t address the point. What do you have to say about S&P putting it all on the tax cuts. It’s true, it’s there. I really would like to hear your defense for your standard bearers in the House.
Take your time, think.
The RINO’s in congress are not my standard bearers and should be voted out along with all the lefties.
Don’t worry about tax cuts because if the socialists continue along this road, there’ll be no taxpayers left to kick into the welfare state.
We now know (with the exception of teabaggers) tax cuts and austerity measures don’t create jobs.
Here’s an excerpt from a WaPo article (below):
There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.