Standard & Poor’s said it may downgrade the credit ratings of Germany and Italy, two of Europe’s largest economies, unless their governments rein in spending and cut debt.
Germany risks losing its triple-A credit rating in 18 months unless it curbs budget spending and reduces debt, said Konrad Reuss, managing director of sovereign ratings at Standard & Poor’s. Italy’s AA-minus rating is also at risk unless the government of Silvio Berlusconi goes ahead with plans to cut spending, Reuss said.
Germany and Italy, the first- and third-largest economies on the 12-nation euro region, are struggling to contain spending amid an economic slowdown. Inconclusive elections in Germany and the resignation of Italy’s finance minister this week left both countries in a state of political uncertainty, which may delay measures needed to spur economic growth.
There are three credit ratings agencies: S and P, Moody’s and Fitch. These are each independent companies performing independent analysis on the financial conditions of companies that publicly issue debt.
It is important to note the reason S and P is threatening to downgrade both countries’ credit ratings because of deficit spending. According to the CIA factbook, Germany’s debt as a percentage of GDP is roughly 65% and Italy’s is slightly over 100%. What’s interesting is the US’ debt as a percentage of GDP is more than Germany’s. According to the Bureau of Public Debt, the US as just under 8 trillion in debt and according to the Bureau of Labor Statistics us GDP is just over 11 trillion. This makes the US debt/GDP ratio a little over 70%.
The only difference between the US and Europe is their respective economic rate of growth. Europe is mired in a slow-growth problem while the US is growing at over 3%. But that won’t last forever. All economies eventually slow down. So, what will happen when the US economy eventually goes into a recession? Will the ratings agencies downgrade our debt?
And if they do, what are the possible consequences?
How’s things down there? Everything dry and in one piece? How’s the traffic?
I’m alive, dry and well. I can’t wait for the stores to reopen so I can eat something aside from PB.
The consequences are higher borrowing costs. For a country with a mammoth amount of debt, that can mean a larger interest expense for its debt.
Good to hear, good to hear!
Don’t we already pay huge amounts of interest on our debt? Like in the trillions each year? Or am I way off base?
Is there a way that the US’s creditors can “call in the debt” or are there safety measures against that?
The reason i ask is because if that is an option for our creditors, it would seem that we already have a HUGE economic weapon pointed directly at our heads…
We owe about 300 million/year. That number has decreased over the last 4 years because of the drop in interest rates.
There is no “put” option on any of the US debt where creditors can essentially say “pay us now.” However, all creditors have the option of banding together to force the borrower to change their ways. It happens in the corporate world all the time.
Ah, yes, millions, not trillions, I never was very good with the huge-ass numbers!
lol
So, what I am wondering at this point then, is are there any incentives for the largest US debt-holders to band together against us?
As much as it would be painful, I would like to see the US get bitch-slapped for its inane monetary/fiscal policies…but I know countires will always operate in their own (or their own brand of elite) interests — is it in anyone’s interest at this point? Or are they all just a band of multi-national marauders who care not for the people anywhere?
Its actually $322 Billion. Not million.
I thought that millions sounded a bit low, but as I said, I never have been good with the huge numbers!
thank, btower!
😉
God, think what we could do with 322 billion$ a year!!
This is the meat of the concern raised by bonddad about the downgrading of US debt.
Curently, about 17% of the Federal budget is spent paying interest on the debt. In reality, due to the budget deficit, this is 28% of taxes collected by the federal government (not including social security taxes). If the debt is downgraded, the government will have to pay significantly higher interest. That could raise the amount from 28% to well over 50% of taxes collected.
Jesus H. Christ — thanks for that graph!
And these fuckers want to get rid of the estate tax, make the tax cuts for the wealthy permanent — for fuck’s sake, you cannot squeeze blood from a stone (i.e., the rest of us hapless taxpayers…)
Thanks agin for the info.!
The only difference I could ever tell between an undergraduate Physics major and undergraduate Engineering major was that when they both solved the same problem, the Engineer had to find out where the decimal point went in the answer.
Our slide rules didn’t do decimal points.
[I switched to Economics and got rid of even the slide rule.]
Penny wise and pound foolish. How American. We really need to get ourselves a better grasp of these big numbers, like what does 200 Billion Dollars buy outside of Halliburton, Fluor, etc., Like how many school repairs could get done, and raises for teachers, and jobs for parents so they both don’t have to work themselves to death AND pretend they are raising children well?
I know, I know. When I was a kid, a million was a lot of money, now, it’s a trifle bit weak, borderline upper middle class . . . But a billion?
Glad to see you are Ok bonddad,what was that about big numbers? boggles my mind,really.