 | The Key Drivers Behind Moody's Confirmation of the US Aaa Rating |
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| Posted Under: Double Dip |
Steven Hess, Vice President and Senior Credit Officer at Moody's put out this piece this morning confirming the US' AAA rating. Below are the 4 key reasons for their decision. You can find the entire report here.
Characteristics that support the AAA rating and that formed the basis of our decision to confirm the rating include the following:
1. The unparalleled diversity and size of the US economy and its long record of relatively solid economic growth, based on both demographics and productivity. Even if the short-term economic outlook exhibits some weakness, we believe that the long term remains favorable in relation to many other advanced economies. This provides a solid base for government finance.
2. The global role of the dollar, which underpins continued demand for US dollar assets, including US Treasury obligations. This feature, unique to the US, provides unmatched access to financing, meaning that the US government can support higher debt levels than other governments. Thus, while comparisons of government debt ratios form an important part of our rating analysis, the status of the dollar and the US government debt market need to be taken into account when making such comparisons. Over time, the dollar's role may be eroded, but we see no immediate threat.
3. Relative to other large Aaa-rated governments, the US debt position is somewhat high, but not out of line with the positions of these countries. While the projected trend of US government debt is less favorable without further deficit reduction measures, we believe that eventually such measures will be adopted. The less favorable debt ratio trend now in place is reflected in the negative outlook assigned to the rating.
4. A step in the right direction toward deficit reduction was taken on 2 August with the passage of the Budget Control Act, even if by itself it will not produce all of the deficit reduction measures necessary to reverse the debt trajectory. Although the political process has been considerably more contentious than usual in the past few months, it finally did produce an agreement. We expect further fiscal measures over time, albeit with vigorous debate over the particulars.
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