The US, opting for stimulus instead of austerity, is increasingly in danger of losing its AAA credit rating
While the major Aaa-rated sovereigns all face fiscal challenges, they are responding to these challenges differently. The UK, Germany and France have, to varying degrees, moved towards deficit reduction, whereas the US has opted for additional stimulus. This means that short-term growth in the US is stronger, but its budget deficit will be larger. Over the longer term, all the countries will feel pressure from ageing-related expenses for healthcare and national pension expendituresVia WSJ:
"The warning on the U.S. rating is well-founded," said Brian Yelvington, chief fixed-income strategist at Knight Capital. "However, it will probably fall on deaf ears until the peripheral Europe story plays out."
Moody's Investors Service said in a report on Thursday that the U.S. will need to reverse the expansion of its debt if it hopes to keep its "Aaa" rating.
"We have become increasingly clear about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the U.S., the likelihood of a negative outlook over the next two years will increase," Sarah Carlson, senior analyst at Moody's, said.
These measures of the U.S. debt burden include federal debt to revenue, estimated to average 397% of gross domestic product until 2020. The ratio of interest to revenue, meanwhile, is expected to rise to 17.6% by 2020, nearly double last year's level. These are "quite high for an Aaa-rated country," Moody's said in its report.
The report also said that there is "a small but increasing likelihood that markets will demand a higher risk premium on government debt, in sharp contrast to the safe-haven status that the U.S. Treasury bond has long enjoyed."