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In this article, Standard & Poor's answers a number of
questions posed by gtnews.com. This one caught my eye:
Q: Why haven't the CRAs
downgraded the US AAA rating?
A: We have affirmed the
ratings on the US despite our judgment that fiscal risk has noticeably
increased because we expect that the fiscal deterioration will be temporary
and that the country's other credit strengths will withstand current
pressures.
The ratings on the US
primarily reflect our opinion of the sovereign's high-income, highly
diversified, and exceptionally flexible economy. The ratings also reflect our
view of its strong track record in terms of growth-enhancing policies, as
well as the unique advantages coming from the US dollar's role as the key
international currency. In our opinion, these strengths continue to outweigh
the US's weakening current-year fiscal performance, growing risks in its
financial sector, longer-term challenges associated with its entitlement
programs, and the nation's weak external position.
If you read it quickly it sounds OK. Lets list the negatives:
* weakening current-year fiscal performance - they think it is only
"temporary"
* growing risks in its financial sector - I'd say "exceptionally"
growing
* longer-term challenges with entitlement programs - they spend more than
they earn, isn't that bad noncurrent-year fiscal performance?
* weak external position - isn't that another way of saying they spend more
than they earn?
Outweighed by:
* high-income economy - what does that mean?
* highly diversified economy - any contraction in spending will also be
highly diversified
* exceptionally flexible economy - yes, with high unemployment people will be
exceptionally flexible about what jobs they will do
* growth-enhancing policies - euphemistic phrase for easy credit - debt,
debt, debt
* key international currency - that is, foreign investors give them money
that allow the growth-enhancing policies.
Have S&P considered that the key international currency is not something
that mitigates against the negatives, but that the negative can affect the
USD status as a key international currency, that people will not want to hold
it debts because of the negatives, that this will undercut growth-enhancing
policies, in which case you only have the diversified and flexible economy
left as positives?
Bron Suchecki
Goldchat.blogspot.com
Bron Suchecki has worked in the precious metals
markets since 1994, when he joined the Perth Mint as an Administration
Officer in their Sydney retail outlet. In 1998 he moved to Perth to work in
the then fledgling Depository division. He has held a number of roles since then
in the treasury, risk and governance areas of the Mint.
All posts are Bron's personal opinion and not
endorsed by the Perth Mint in any way.
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