USA & Britain the Greek way?

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Het wordt dus kennelijk mogelijk om de UK en USA op dezelfde manier te
behandelen als Griekenland?
In ieder geval zijn dezelfde banken er in gemoeid ;)

Groet / Cees

March 15, 2010
Moody’s Says U.S. Debt Could Test Triple-A Rating
http://www.nytimes.com/2010/03/16/business/global/16rating.html
By DAVID JOLLY and CATHERINE RAMPELL

The gold-plated credit rating of the United States — an article of faith
across America and, indeed, around the world — may be at risk in coming
years as the nation copes with its growing debts.

That sobering assessment, issued Monday by Moody’s Investors Service,
provided a reminder that even Aaa-rated United States Treasury bonds,
supposedly the safest of safe investments, could be downgraded one day
if Washington failed to manage the federal debt.

Moody’s said the United States and other major Western nations,
particularly Britain, have moved “substantially” closer to losing their
gilt-edged ratings. The ratings are “stable,” but “their
‘distance-to-downgrade’ has in all cases substantially diminished,” the
credit ratings agency said.

A downgrade would affect more than American pride. The bigger risk would
be to the country’s ability to keep borrowing money on extremely
favorable terms, and therefore to keep spending more money than it takes
in from tax revenue.

A credit rating lets lenders and investors know how likely it is that a
borrower can pay back a loan. A sterling rating means there is little
for lenders to worry about. A lower one typically results in bond
investors demanding higher interest rates on debt.

Those higher rates, in turn, add to the country’s overall debt burden
and can force the government to reduce spending, increase taxes or both.
That difficulty has been well-illustrated recently in Greece and
Portugal, with strikes and protests as citizens march in the streets to
oppose tough austerity measures that directly reduce entitlements and
state benefits.

“Growth alone will not resolve an increasingly complicated debt
equation,” Moody’s said. “Preserving debt affordability” — the ratio of
interest payments to government revenue — “at levels consistent with Aaa
ratings will invariably require fiscal adjustments of a magnitude that,
in some cases, will test social cohesion.” The United States, Britain,
France and Germany have always been rated triple-A by Moody’s, with the
United States first rated in 1949.

Pierre Cailleteau, managing director of sovereign risk at Moody’s,
stressed that none of their ratings were “threatened so far.”

But he did differentiate among the top countries, saying that Britain
and the United States are in the toughest position.

“The U.K. and the U.S. are more tested than, say, Germany or France,”
Mr. Cailleteau said in an e-mailed response to a question.

“Their rating relies, more than in other countries, on their ability to
repair the damage caused by the crisis on public finances,” he added.

Without a stronger recovery, governments could encounter serious trouble
in phasing out government support for the economy, Arnaud Marès, the
main author of the report, said in a statement. That “could yet make
their credit more vulnerable,” he said.

Last May, Moody’s cut Japan’s Aaa rating to Aa2, as the market grew
increasingly uneasy with Japan’s debt burden.

For now, the United States debt remains affordable, Moody’s said, as the
ratio of interest payments to revenue fell to 8.7 percent in the current
year, after peaking at 10 percent two years ago. If that trend were to
reverse, the Moody’s analysts said, “there would at some point be
downward pressure on the Aaa rating of the federal government.”

The administration of President Obama estimates that the United States
deficit will rise to 10.6 percent of gross domestic product in the
current fiscal year, the highest since 1946, and federal debt will reach
64 percent of gross domestic product. Government expenditures are
expected to rise to a postwar high of 25.4 percent of G.D.P.

In Britain, Moody’s said, the risk is that the growth outlook proves too
optimistic and tax receipts do not match forecasts, as the government of
Prime Minister Gordon Brown has little room left to maneuver.

In that situation, the debt — which the government already predicts will
stabilize at around 90 percent of G.D.P. — could balloon, undermining
the credit rating.

In comparison to both Britain and the United States, the report said,
households in France and Germany entered the crisis with relatively low
indebtedness, and hence the governments have a little more room to
maneuver. Yet both countries will find themselves under pressure to
maintain financial discipline in the event that growth does not pick up.

Mr. Cailleteau at Moody’s said that “discretionary fiscal adjustment” —
cutting programs or raising taxes — had become “the principal means of
repairing the damage that the global crisis has inflicted on government
balance sheets,” and it remained to be seen whether governments were
capable of carrying out the painful measures necessary.

“Growth will support some governments’ adjustment plans more than those
of others,” Mr. Cailleteau said in the report, “but no government can
rely on it.”

There is also a danger that, with governments unwilling or unable to
begin withdrawing stimulus, central banks could take the initiative to
raise interest rates before the economy is ready, the report found. Such
a situation might “quickly compound an already complicated debt
equation, with more abrupt rating consequences a possibility.”

Moody’s praised Spain’s recent efforts to address its finances, although
“its adjustment process will undoubtedly be drawn out and painful.”

As for the Nordic countries, the agency said the region entered the
crisis in relatively good shape, and their credit ratings appeared to be
well protected.

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