Standard & Poor's maintains U.S. AAA credit rating
Standard & Poor's (S&P), the prominent credit rating company, announced on Thursday that it intends to maintain the United States' AAA credit status. This rating, S&P's highest level, is expected to remain stable, despite the government's pricey stimulus package and difficult short-term situation.
Lately, S&P has been hard on many banks and governments. In May, the company downgraded its outlook on the United Kingdom from "stable" to "negative," stating that by 2013 the country could approach a debt burden that is 100 percent of gross domestic product. By comparison, the company predicts that the United States will max out with a debt burden that is 90 percent of GDP.
While this didn't immediately affect the U.K.'s AAA rating, it could presage a drop in the country's status. Perhaps most ominously, S&P has stated that "The rating could be lowered if we conclude that, following the election, the next government's [. . .] plans are unlikely to put Britain's debt on a secure downward trajectory."
In clearer English, this translates to both an economic threat and a political one. First, S&P predicts that the current British government will be overthrown in the next election; in fact, it seems to be endorsing that path. Second, the company is warning that, if the next government does not start adopting more conservative economic policies, it will lose its top credit rating.
Obviously, this doesn't directly affect the U.S. However, the veiled threat presented to one of our closest allies, combined with a marginally brighter outlook for the United States, carries a strong message about the country's perceived need for increased fiscal conservatism.
On Wednesday, S&P hit a little closer to home, lowering its rating on 22 American banks, including Wells Fargo. Among its justifications for the move, the company cited greater market volatility and a regulatory structure that would hamstring some of the freedoms that banks have traditionally enjoyed. This, perhaps, is a place where the needs of banks and the needs of governments diverge: while regulation will reduce the freedoms of American banks, it will also increase the security of the country's economy.
In a particularly telling note, S&P also pointed out that part of the downgrade lies in the fact that "S&P Ratings doesn't view regional banks as being highly systemically important." Systemic importance, clearly, is a key part of the equation. For example, the U.S. dollar's position as the most-used world currency is, effectively, self-perpetuating. S&P has stated, in fact, that this aspect of America's financial situation -- and the fact that it seems unlikely to change -- has been a key factor in maintaining its high credit rating.
This contrasts with South Africa, a country that is regionally significant but less important on the international stage. The country, whose economy is expected to contract by 1.5 percent in 2009, has been given a low BBB+ rating. By comparison, the US economy is expected to contract by 2 percent this year.
This isn't to say, however, that the sole strength of the U.S. is the popularity of its currency. S&P analyst Nikola Swann has cited the country's experienced economic leadership, its comfort with open trade, its highly-stable political structure, and its very diverse economy. However, it is always worth remembering that S&P's ratings, by the company's own admission, are not absolute standards. Rather, they represent, on some level, a ranking of potential borrowers. In this context, the United States isn't just fighting a recession; it is also competing against everyone else who is fighting the recession.