US AAA credit rating at risk

Wednesday 13th May 2009

America is at risk of losing its AAA credit rating for the first time since 1917, the Financial Times reported, citing the New York-based Peter G. Peterson Foundation.

“For too long, the US has delayed making the tough but necessary choices needed to reverse its deteriorating financial condition,” the foundation’s chief executive David Walker said in the report, published on the FT's website.

“One could even argue that our government does not deserve a triple A credit rating based on our current financial condition, structural fiscal imbalances and political stalemate.”

Walker said two developments could hasten a reduction in the US credit rating: the risk that much-needed healthcare reform harms the nation’s financial condition; and any failure of the federal government to “create a process that would enable tough spending, tax and budget choices to be made after we turn the corner on the economy”.

Walker pondered the question in his report as to how a triple A rating was justified for an entity with an accumulated negative net worth of US$11 trillion, additional off-balance sheet obligations of US$45 trillion and a current year budget deficit forecast at US$1.8 trillion.

He said, though, that the US has “the resources, expertise and resilience to restore its economy and meet its obligations,” while “many of the trillions of dollars recently funneled into the financial system will hopefully rescue it and stimulate our economy.”

To view David Walker’s report, click here.

Businesswire.co.nz

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