The first re-review by the ratings agencies is now out on The United States sovereign credit rating after Standard & Poor’s downgraded the “AAA” sovereign rating.  Fitch has just reaffirmed the “AAA” rating and more important is that the outlook is STABLE.  The actual ratings pertain to the long-term foreign and local currency Issuer Default Ratings, the U.S. Treasury security ratings, and the U.S. Country Ceiling; the short-term foreign currency rating is affirmed at ‘F1+’ and the outlook on the Long-term ratings is Stable.

Fitch noted that this affirmation reflects the exceptional creditworthiness by its global role and by its flexible, diversified, and wealthy economy that make up the revenue base.

Fitch did leave an out here to go negative in the future.  It said it will review its fiscal projections in light of the Joint Select committee due by the end of November as well as the near-term and medium-term economic outlook by the end of the year.  A negative outcome from the Joint Select committee or a weakening of the economy further most likely result in an outlook change to Negative from Stable. It also said that the debt ceiling is not an effective tool and it also went back to this $4.1 trillion pledge in the deficit cuts.

What Fitch said on the outlook is that it would indicate a greater than 50% chance of a downgrade over a two-year horizon, but it noted “less likely would be a one-notch downgrade.”

One key word of caution is there about Washington D.C., which you likely knew already, “the fiscal profile of the US government has deteriorated sharply and is set to become an outlier relative to ‘AAA’ peers.”  Fitch noted that the total level of general government debt if you include states and local governments is now expected to hit 94% of GDP this year.  That is the highest of “AAA” nations, but the key standout is that the federal government debt remains lower than other ‘AAA’ central governments.

Fitch went on to say that the U.S. dollar and Treasury securities remain the global benchmark even compared to current “AAA” nations.

24/7 Wall St. has already given a list of the nations that still have “AAA” ratings and shown which of those nations are at risk of losing their prized “AAA” ratings as well.  It is not just France which is at risk.

JON C. OGG

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