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Would it be serious if the United States lost its triple A?

Would it be serious if the United States lost its triple A?

An eventual loss of the triple A USAfollowing Wednesday’s warning from the rating agency fitchwould be above all symbolic, just when the possibility of a default weighs on the country, due to a political blockade.

Even so, this degradation would not be unprecedented and its consequences in the world’s largest economy could be limited, since its debt is currently highly coveted in the markets.

What is an AAA?

The AAA or triple A is the best note that a rating agency can assign to assess the ability of a State, community or company to repay its debt.

The three main agencies in the world, S&P Global, Fitch and Moody’s, use a notation system materialized in the form of letters that go from AAA (the best possible grade) to C or D when there is default.

Supposedly, their ratings reflect the economic health of these players: to rate a country, the agencies assess growth, debt, deficit, spending, tax revenue… and establish a diagnosis that guides financiers when to invest.

Consequently, the lower the note, the more investors tend to demand a high interest rate when lending money to a State or a company, since their debt will be considered riskier.

Who has a triple A rating?

Only a small number of countries have the best possible score in the big three agencies: Australia, Denmark, Germany, the Netherlands, Sweden, Norway, Singapore, Switzerland and Luxembourg. Others have AAAs in one or two of the three agencies, such as the United States, Canada, and the European Union.

Who has lost their triple A?

In Europe, several countries, such as France, were deprived of top ratings in all three major agencies in the aftermath of the 2008 financial crisis.

Still, after losing their AAA in 2012-2013, France “did not lose investors” in its debt, assured the founder of the Global Sovereign Advisory cabinet, specialized in the economic strategy of States.

What are the consequences of losing triple A?

The loss of the triple A is symbolic because of the signal it sends to the markets. In practice, if the United States were downgraded by one grade, its rating would still be very favorable (AA+), so investors would not be spooked. The US debt continues to generate enormous confidence and constitute an unavoidable investment for global savings.

“The dollar is the world’s reserve currency”recalled Fitch in its conclusions on Wednesday, suggesting that the United States will continue to find buyers for its debt without major problems, although the interest rate could rise slightly.

In 2013, this agency already placed the United States under a “negative outlook”, which indicated that he did not rule out lowering the note. But in the end she didn’t.

Fitch, which has rated the United States since 1994, and Moody’s, which has done so since 1949, have never downgraded it.

Instead, the United States already lost its prized AAA rating from S&P Global in 2011, so the scope of a downgrade by Fitch would be limited.

Faced with the risk of degradation, the White House spokeswoman, Karine Jean-Pierre, considered on Wednesday that it is about “a manufactured crisis”criticizing the refusal of conservatives in Congress to vote for an increase in the debt limit of the United States, essential to avoid a moratorium.

Source: AFP

Source: Gestion

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