How Many A’s Should The USA Have?

Fitch Ratings – based in France – have just confirmed the US credit rating as AAA, with its economic outlook remaining “stable”. This comes 10 days after US-based rating agency, Standard & Poor’s, stripped the US of its triple-A rating an labeled the nations outlook as “negative”. This is, definitively not, reducing the market uncertainty, and Fitch Ratings argument for keeping the US triple-A is very close to pure nonsense:

“The affirmation of the US ‘AAA’ sovereign rating reflects the fact that the key pillars of US’s exceptional creditworthiness remains intact: its pivotal role in the global financial system and the flexible, diversified and wealthy economy that provides its revenue base.”

Fitch Ratings

A quick attempt to decrypt the message from Fitch: The US is rated triple-A bacause it is. The rating agency also writes that the “monetary and exchange rate flexibility further enhances the capacity of the economy to absorb and adjust to shocks.” I guess this means; they can just print more money.

In light of Fitch comment from August 2., after the US Congress agreed to raise the nations debt ceiling, makes today’s affirming even more peculiar:

“On current trends Fitch projects that US government debt, including debt incurred by state and local governments as well as the federal government, will reach 100% of GDP by the end of 2012, and will continue to rise over the medium term – a profile that is not consistent with the United States retaining its ‘AAA’ sovereign rating,” Fitch Ratings wrote two weeks ago.

(Fitch Comments on US Debt Agreement – Warns of Downgrade)

Today, however, the rating agency is paining a quite different picture:

“US sovereign liabilities, both the dollar and Treasury securities, remain the global benchmark and accordingly the US credit profile benefits from unparalleled financing flexibility and enhanced debt tolerance, even relative to other large ‘AAA’-rated sovereigns. The US dollar’s status as the pre-eminent global reserve currency and depth of the US Treasury market render financing risks minimal and underpin a low cost of fiscal funding.”

“The US economy remains one of the most productive in the world, reflected in levels of income per head that are substantially higher than the ‘AAA’ median and other major ‘AAA’ sovereigns. The institutional, legal and financial infrastructure supports business growth and innovation and Fitch continues to forecast that the US economy (and tax base) will, over the medium term, be one of the most dynamic amongst its high-grade and ‘AAA’ peers and support the stabilisation and eventual reduction in government indebtedness. Fitch’s current assessment is that the US economic recovery will regain momentum and that a period of above trend growth will subsequently be followed by growth of at least 2.25% over the long term.”

Here’s the full statement:

Press release.

Personally, I think this smells kinda funny, and my instincts tells me that there’s more to this than meets the eye…

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