The main reasons for the loss of confidence are the growing public debt and the budget deficit.
Photo: GLOBAL LOOK PRESS
The second one left. Fitch has downgraded the US rating from maximum AAA to AA+. It’s like a five with a slight minus, if you measure it in the school’s coordinate system. In general, it does not seem to be anything terrible, but a very revealing bell.
GOVERNMENT DEBT AND INCREASED MULTI DEFICIENCY
The reason is quite obvious. In the US, the national debt continues to grow. It’s already 32.5 trillion dollars. For comparison, in 2000 it was six times less: $5.5 trillion. And the US economy has only more than doubled in that time.
– Let’s be honest. The decision is completely fair. Just late. It’s been long overdue. But, I think, for political reasons it did not happen. Only now S&P (another rating agency. – Ed.) dared in 2011. The rest sat quietly, silently: we see nothing, we hear nothing. Well… heard. Not even a moment has passed, – comments investment banker Yevgeny Kogan.
By the way, Standard & Poor’s downgrade 12 years ago caused stock markets to collapse around the world, including Russia. Now the exchanges have reacted in moderation. Only in Asia was there a small reduction. The rest hardly noticed. However, now the situation is a little different.
THE ANTIDOTE – LOW RATES
In 2011, the national debt was already through the roof, but Americans quickly coped with the consequences. They began to fight the recession in the economy with the help of low rates. They were reduced to zero. It became the antidote. It caused a boom in the stock markets, in the real estate market. And in general, the US economy has been actively growing throughout this decade. True, in debt …
Now the situation is made worse by the fact that rates in the United States are no longer zero. And they cannot lower them, otherwise inflation will rise. The United States has to borrow at 5-6% per year. And they can’t keep busy. The budget deficit is about two trillion dollars. This money has to come from somewhere. Otherwise, there will be an acceleration of inflation. And then the stakes will have to be raised even more. But when you borrow money at high interest rates, your debt payments start to skyrocket. And this further increases the budget deficit.
So the situation in the US economy is difficult. And it will get worse. Sooner or later you will have to pay your debts. As you know, it is impossible to live forever in debt. The United States has a margin of safety, but it is not infinite. This was emphasized by the rating agencies.
“Based on what we are seeing, there is no catastrophe in sight. On the other hand, another crack has appeared in the foundations of the global dollar-based financial system,” says Anton Vesenniy, the author of the Lazy Investor telegram channel.
HOW IT WILL AFFECT US
A few years ago, any unease in the US economy reflected back to us. The stock market reacted particularly sharply. The connection was strong. Including due to the fact that many American investment houses kept money in Russia. And they started taking money out of our economy. Now the situation is different. No special consequences are expected for Russia, experts say.
But a conditional US default, if it ever happens, could affect the entire global economy. And it will be similar to a nuclear explosion. Dozens of countries around the world have US government bonds. They get hurt first. Also, the cost of major commodities will fall. And this can already affect our economy. It is true that this is not the perspective of the coming years. The US economy is still pretty strong.
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What do these ratings mean?
Remember that there are three largest rating agencies in the world (S&P, Moody’s, Fitch). Evaluate the solvency of each country and of large companies. In general, those who borrow money on the stock market. Using these estimates, investors can assess the risks that a particular borrower may be able to repay its debts in the future.
The higher the rating, the lower the risk. The worst grade is D. This is when the country has already defaulted, that is, it has not been able to pay its debts. Before default, they put – C. This is almost a verdict. And the near 100% probability of a default occurring soon is a matter of time. Next – B. This is the average rating, “satisfactory”. The more “B’s” (maximum three), the closer the country or company is to a good rating. And finally, the highest group of grades is A. Among them, the ideal grade is three “A’s.” America has lost it.
